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INNOVATION REPORT
INNOVATION REPORT
Competing in the
global economy:
the innovation challenge
DECEMBER 2003
Competing in the global economy: the innovation challenge
Printed in the UK on recycled paper with a minimum HMSO score of 75.
First published December 2003. Department of Trade and Industry. http://www.dti.gov.uk/
© Crown Copyright. DTI/Pub 7035/2k/12/03/NP. URN 03/1607
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The DTI drives our ambition of
‘prosperity for all’ by working to
create the best environment for
business success in the UK. We
help people and companies become
more productive by promoting
enterprise, innovation and creativity.
We champion UK business at home
and abroad. We invest heavily in
world-class science and technology.
We protect the rights of working
people and consumers. And we
stand up for fair and open markets
in the UK, Europe and the world.
Steering Committee Members
Nick Baldwin
Energy Advisory Group Board
Robert Crawford
Scottish Enterprise
John Cridland
Confederation of British Industry
Anthony Dunnett
South East of England Development Agency
Mark Gibson
Business Group, DTI
Anne Glover
Amadeus Capital Partners Ltd.
David Hughes
Innovation Group, DTI
John Kingman
HM Treasury
Ron Loveland
Welsh Assembly
Roger Lyons
AMICUS
Geoffrey Norris
No. 10 Policy Directorate
Vicky Pryce
Chief Economic Adviser, DTI
Janice Shiner
Department for Education and Skills
John Taylor
OST, DTI
Joe Tidd
Science and Technology Policy Research,
University of Sussex
Caroline Whitfield
Innovation Group Advisory Board
INNOVATION REPORT
145
Contents
Foreword ...................................................................................3
Introduction ............................................................................5
Overview ...................................................................................7
Chapter 1
The innovation challenge .....................................17
Chapter 2
High performance
innovative companies...............................................31
Chapter 3
Technology innovation .............................................51
Chapter 4
National innovation assets..................................69
Chapter 5
Innovation policies
across Government ....................................................79
Chapter 6
Regional innovation.....................................................97
Chapter 7
Global links .........................................................................113
Action plan ..........................................................................127
Annex ........................................................................................135
Glossary of terms .......................................................141
Steering Committee
Members ..............................................................................145
INNOVATION REPORT
1
2
INNOVATION REPORT
Foreword
The creativity and inventiveness of our
people is our country’s greatest asset and
has always underpinned the UK’s economic
success. But in an increasingly global
world, our ability to invent, design and
manufacture the goods and services that
people want is more vital to our future
prosperity than ever.
Innovation, the exploitation of new ideas,
is absolutely essential to safeguard and
deliver high-quality jobs, successful
businesses, better products and services
for our consumers, and new, more
environmentally friendly processes.
There are many British companies who
have risen to this challenge and reaped the
rewards for their vision. Those Britishbased manufacturing industries that have
invested heavily in Research and
Development (R&D) have, in recent years,
competed successfully in the global
economy and have grown faster than the
economy as a whole.
But this is, by no means, the whole picture.
We do have world-beating companies
but also have too few of them. Too many
of our firms have failed to put enough
emphasis on R&D and developing skills.
in place through a huge investment in our
nation’s science base, the platform of
macro-economic stability and support for
enterprise, skills and knowledge at the
centre of our policy making.
We now need to go further. The challenge –
set out in this important report – is to
create the conditions where all our firms
put innovation at the centre of their
strategies for the future. Government can’t
do this alone. We need to work with
industry, trade unions, employees and
consumers. But Government does have
a key role. So I have asked the Secretary
of State for Trade and Industry to chair
a Ministerial team to lead the innovation
agenda across the whole of Government
and drive forward the implementation
of this report.
We want the UK to be a key knowledge
hub in the global economy, with a
reputation not only for world-class
scientific and technological discovery but
also for turning that knowledge into new
and profitable products and services.
This report sets out the next steps we are
taking to turn that vision into a reality.
We have been working hard to put this
right. Over the last six years, the
Government has put the right foundations
Rt. Hon. Tony Blair, Prime Minister
INNOVATION REPORT
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4
INNOVATION REPORT
Introduction
A year ago I was asked by the Secretary of
State for Trade and Industry, Patricia
Hewitt, to review the Government’s policies
which impact on innovation. She saw the
need to raise our level of productivity and
position ourselves to compete effectively
against the low-wage, newly-emerging
economies and this means that a step
change is required in our rate of
innovation. This report of our work has
been produced in close partnership with
industry, the Trade Unions and our
university and research institutes, who are
in the best position to know how we can
compete in global markets.
If we are to be able to compete
successfully against the most dynamic
industrial economies in the world, it is not
enough to open up our markets to
competition, though this is an essential
first step. It is also necessary for the
Government to provide the significant
range of public goods which are necessary
for a knowledge-driven economy to create
competitive advantage, such as a strong
science and technology base, incentives for
knowledge transfer and business Research
and Development (R&D), and high
standards of education at all levels. Only in
this way can we provide opportunities for
all those who want to innovate and create
new businesses, whatever their jobs and in
whatever region of the country they work.
We have already put in place many of the
foundation stones of a successful
knowledge economy, and the case studies
in the report show what can be done by
innovative and dynamic companies, large
and small. But in the fast-moving world in
which we live, we need to constantly
benchmark ourselves against the best,
learn from other countries, and increase
the effectiveness of our policies.
As Patricia Hewitt has made clear, our
vision is that we should be a key hub in the
global knowledge economy. This means
that the UK should be a country famed not
only for its outstanding record of discovery
but also for innovation, a country that
invests heavily in business R&D and
education and skills, and exports high-tech
goods and services to the world. We also
want to be a country with strong science
and technological links with the best
research around the world, so that we can
stay always at the leading edge. Finally, we
should be a country to which talented
entrepreneurs and world-class companies
come from around the world to do
research and set up high-tech companies,
attracted by the quality of our research,
by the strong links between universities,
research institutes and industry, by
geographic clusters of high-tech companies,
by their ability to raise finance, particularly
venture capital, and by our quality of life.
Lord Sainsbury, Minister for Science and Innovation
INNOVATION REPORT
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6
INNOVATION REPORT
Overview
INNOVATION REPORT
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1. Competing in the
Global Economy
Dramatic moments in the history of
industrial change have always been
characterised by the successful exploitation
of new ideas and the achievements of
innovators.
Innovation has driven economic progress,
from the invention of the spinning jenny
that transformed the textile industry during
the 18th century, to the harnessing of
electricity and the development of mass
production. More recently, semi-conductors,
the internet and mobile technology have
revolutionised business performance and
the economic potential of nations.
Today, there are three reasons why
innovation is even more urgent for
companies and countries:
trade liberalisation and a rapid fall in
communication and transport costs
mean that the UK must increasingly
compete against countries with much
lower labour costs and well-educated
labour forces. Wages in China are less
than 5% of those in the UK. Labour costs
in Korea are just over half UK levels, and
the proportion of graduates in the
working age population is almost
identical;
technology and scientific understanding
are changing our world faster than ever
before. Developments in Information
and Communications Technologies (ICT),
new materials, biotechnology, new fuels
and nanotechnology are unleashing
new waves of innovation, and creating
many opportunities for entrepreneurial
businesses to gain competitive
advantage; and
global communications, the 24 hours,
7 days of the week media phenomenon
of the 21st century, mean that consumer
tastes are also changing faster, as new
fashions, ideas and products spread
across the world almost instantaneously.
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INNOVATION REPORT
These developments are occurring at a
speed and on a scale never seen before.
In the past, many UK-based businesses
have prospered even when selling in low
value markets, but today British industry
faces a new challenge: how to raise its rate
of innovation?
Professors Michael Porter and Christian
Ketels of Harvard University have
recognised this challenge, describing how
“the UK currently faces a transition to a
new phase of economic development.”
“We find that the competitiveness agenda
facing UK leaders in Government and
business reflects the challenges of moving
from a location competing on relatively low
costs of doing business to a location
competing on unique value and innovation.
This transition requires investments in
different elements of the business
environment, upgrading of company
strategies, and the creation and
strengthening of new types of institutions1.”
2. Why Innovation is Important
We define innovation as “the successful
exploitation of new ideas”. Often it
involves new technologies or technological
applications. Innovation matters because
it can deliver better products and services,
new, cleaner and more efficient production
processes and improved business models.
For consumers, innovation means higher
quality and better value goods, more
efficient services (both private and public)
and higher standards of living.
For businesses, innovation means
sustained or improved growth. The
innovative company or organisation
delivers higher profits for its owners and
investors. For employees, innovation
means new and more interesting work,
1 DTI Economics Paper, “UK Competitiveness: Moving to the
Next Stage”, (May 2003) http://www.dti.gov.uk/economics
Overview
better skills and higher wages. Equally, an
absence of innovation can lead to business
stagnation and a loss of jobs.
For the economy as a whole innovation is
the key to higher productivity and greater
prosperity for all.
Innovation will also be essential for
meeting the environmental challenges of
the future – including moving to a low
carbon economy and reducing waste.
We need to find new ways to break the link
between economic growth and resource
depletion and environmental degradation.
It is important to every sector of our
economy, in both manufacturing and
services. To hold our own in modern
manufacturing we will need to innovate
strongly, creating new high-tech
manufacturing industries such as
biotechnology and upgrading traditional
sectors such as steel and textiles.
While British-based manufacturing faces
threats from developing economies,
advances in science and technology also
offer many opportunities. In the last ten
years, the chemicals (including
pharmaceuticals), computers and office
equipment and communication sectors
have all grown faster than the economy as
a whole. And even within sectors that have
suffered overall decline there are sub-sectors
where companies have grown and prospered
by focussing on unique value and innovation.
What characterises these success stories is
that they tend to have relatively high inputs
of research and development (R&D) and
skilled labour forces, as Table 1 shows.
At the same time we need to raise the level
of innovation in our service industries, if
we are to meet the challenges posed by the
outsourcing of low – value added
administrative jobs to developing nations.
Services accounted for 56% of GDP in 1981
and 72% in 20012. Our productivity in
services is no better than in manufacturing
Table 1
Output growth, R&D and skills inputs by manufacturing sector
Average annual
percentage
growth
1991-2001
Electrical and optical
R&D as percentage Percentage of
of value added
employees
(average
with degrees
1991-2000)
5.5
6.6
18.8
16.1
5.5
27.5
6.4
12.9
20.9
Chemicals & man made fibres
- of which pharmaceuticals
3.1
6.6
18.5
44.2
26.4
n/a
Plastic and rubber products
1.4
0.8
7.5
Food, drink & tobacco
0.4
1.1
8.1
-4.0
0.4
<8.5
1.0
7.0
12.9
- of which computers &
office equipment
- communication equipment,
TV, radio
Textiles
Manufacturing total/average
Source: DTI manuafcturinng Strategy (April 2002) –
http://www.dti.gov.uk/maufacturing/strategy.pdf
2 Office for National Statistics: UK National Accounts –
The Blue Book 2003 edition.
INNOVATION REPORT
9
when compared with our major competitors.
Technology is being used increasingly in
areas such as retail banking and computer
games to improve business processes and
customer service, while almost a fifth of
business Research and Development (R&D)
expenditure today takes place in services.
The latest international comparisons of
data on business R&D (Table 2) show the
UK well behind the US and roughly equal
to the EU average. However, it is
encouraging that after a steady period of
decline from 1.5% of GDP in 1981 to 1.16%
in 1997, we have seen a move in the right
direction to 1.24% in 20023.
3. The UK’s Innovation
Performance
Measures of patents filed in Europe, Japan
and the US provide an indicator of those
patents judged most valuable by their
creators. On this indicator, adjusting for
size of the economy, UK patenting lies well
behind that of Japan and the US, and
slightly behind the EU average. As the latest
figures we have are for 1998, it is not possible
to see what the trend has been since then.
The UK is one of the world’s most open
trading nations and our consumers can
enjoy the benefits of innovation wherever
it occurs. But if UK-based companies fail
to innovate, jobs and profits will suffer,
and our standard of living will fall
compared with other countries.
4. The Role of Government
We already have some sectors that lead
the world in innovation: aerospace,
pharmaceuticals, biotechnology, financial
services and many of the creative
industries; and there are some firms in
almost all sectors that are global leaders.
However, overall, our performance is not
good enough. Although there is no single
indicator of innovation, two measures of
technological innovation – business R&D
and patenting – show the UK’s
performance is only average compared
with our international competitors.
Innovation ultimately depends on the
knowledge, skills and creativity of people at
work, but Government has an important
role to play in creating the best possible
conditions for innovation, and developing
the significant range of public goods that
are essential for a dynamic and innovative
knowledge economy, including a strong
science, engineering and technology base,
incentives for knowledge transfer, and high
educational standards.
Table 2
Expenditure on business R&D as a percentage of GDP, 1992-2001
1992
1997
1998
1999
2000
2001
Finland*
1.21
1.79
1.94
2.20
2.41
2.42
Germany
1.66
1.54
1.57
1.70
1.75
1.76
France*
1.49
1.39
1.35
1.38
1.37
1.37
UK
1.39
1.16
1.17
1.23
1.19
1.23
EU average*
1.18
1.13
1.14
1.19
1.22
1.24
USA
1.90
1.91
1.94
1.98
2.04
2.10
OECD*
1.49
1.48
1.49
1.53
1.56
1.62
2002
1.75
1.24
2.06
*Most recently available figures are for 2002.
Source: OECD/ONS
3 OECD, Main Science and Technology Indicators (May 2003).
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INNOVATION REPORT
Overview
The innovation challenge has been a clear
theme of policy-making since 1997. In that
time we have published three White
Papers: “Our Competitive Future – Building
a Knowledge Drive Economy” (1998);
“Excellence and Opportunity – A Science
and Innovation Policy for the 21st Century”
(2000); and “Opportunity for All in a World
of Change – Enterprise, Skills and
Innovation” (2001).
These new policies are already beginning
to produce results. For example, since 1997
we have seen a significant cultural change
in the relationship between the university
sector and industry. In 2000/2001 there
were 248 spin-off companies from British
Universities compared with 203 in the
previous year and 70 a year, on average,
in the 5 years before that4. The number of
Intellectual Property (IP) licences granted
to UK-based companies, based on Higher
Education Institutes’ IP, increased by
38% from 382 in 1999/2000 to 527 in
2000/2001, while total new (initial) patents
filed rose by 26% from 725 to 913 over
the same period.
UK companies will have to compete more
in the future on unique, high value-added
and innovative products and services.
This will require inspirational leadership,
stronger management and leadership
skills, a highly skilled workforce, a flexible
labour market that promotes diversity and
fair treatment, and high performance
workplaces.
The Government’s Skills Strategy, “21st
Century Skills: Realising Our Potential”
(published in July 2003), makes clear that
we have many strengths in the way in
which we develop skills, learning and
qualifications in this country. Thanks to
our recent reforms, our young people
compare well internationally in their
literacy, numeracy and science skills.
We are as good at developing highly skilled
graduates as the best in the world.
4 Higher Education Business Interaction Survey;
http://www.hefce.ac.uk/pubs/hefce/2003/03_11.htm
But it remains the case that French,
German and US workers produce between
a quarter and a third more in every hour
they work than their British counterparts.
A highly educated workforce with a culture
of lifelong learning is more likely to adapt
to economic change and, as our Skills
Strategy makes clear, improving skills
levels across the board, particularly among
those with the lowest skills levels, is a
focus for the Government’s agenda for
enhancing flexibility across the UK.
The Skills Strategy sets out the
Government’s agenda for acting on both
the demand for, and supply of, skills as a
major contributor to improving levels of
innovation and productivity. It commits the
Government to creating a more demandled, responsive and flexible training system
delivered through:
the Skills Alliance, jointly chaired by the
Secretaries of State for Trade and
Industry and Education and Skills;
the joint Department for Education and
Skills (DfES) and DTI Leadership and
Management Unit;
the joint DfES and DTI sponsored Skills
for Business Network of Sector Skills
Councils leading the development of
Sector Skills Agreements; and
Regional Skills Partnerships – which will
bring together activities on regional and
sectoral skills priorities, training,
business support and labour market
activity in support of regional economic
strategies.
This report builds on the policy themes of
the previous White Papers: the need for
the improved funding of science, incentives
for knowledge transfer, the development
of innovation-driven regional strategies
and clusters, improving knowledge and
skills, and the international battle for talent.
To improve our innovation performance,
a major cross-government initiative is
required. The DTI and the Office of Science
INNOVATION REPORT
11
and Technology (OST) have a key role to
play but wider actions across a range of
Government Departments are necessary if
we are to achieve the best possible
conditions for innovation. If real change is
to be achieved then innovation must
become embedded in the thinking of all
departments and agencies, and there must
be greater collaboration between them.
In addition to the £2.3 billion of R&D
funded by the OST, and the Higher
Education Funding Councils, Government
Departments including the NHS funded
over £4.5 billion of R&D5. This means that
there are substantial opportunities for
collaboration across Government,
particularly in knowledge transfer to
business. The public sector, which
purchased £109 billion of goods and
services in 2001/026, also has huge
potential to stimulate innovation by acting
as an ‘intelligent customer’. As the
European Commission Report ‘Raising EU
R&D Intensity’7 said: “The boost to
innovation derived from defence spending
in the USA could be matched in Europe
by innovation-orientated procurement in
health and public security”.
Furthermore, Government can help
through its sponsorship of particular
industries and by drafting outcome-based
regulations that promote, rather than
restrict, innovation.
Recognising the innovation challenge
facing the UK, the Prime Minister has
asked the Secretary of State for Trade and
Industry to chair a Ministerial team to lead
the innovation agenda across Government
and drive forward the implementation of
this report.
5 ONS Government R&D survey (reproduced in The
Forward Look, Table 4, pp 170-171). Figures cover 2003/04
– http://www.ost.gov.uk/research/forwardlook03
6 Public Expenditure Statistical Analyses, HM Treasury and
ONS, (May 2003).
7 http://europa.eu.int/comm/research/era/3pct/pdf/reportmixpublicsupport.pdf
12
INNOVATION REPORT
5. What we will do
We want the UK to be a key knowledge
hub in the global economy, with a
reputation not only for outstanding
scientific and technological discovery, but
also to be a world leader in turning that
knowledge into new and exciting products
and services. In terms of business R&D
and patenting we will aim to be the leading
major country in Europe within ten years.
In developing our analysis and drawing up
proposals, we have consulted widely with
businesses, successful entrepreneurs and
innovators, trade unions, academic and
business experts, Devolved
Administrations (DAs), and Regional
Development Agencies (RDAs). We also
looked closely at international experience
and the lessons learned by other
economies seeking to raise their rate of
innovation.
We have already laid the foundations of
an innovation economy in areas such as
macro-economic policy, fiscal policy,
competition policy, trade policy and
education and skills. But there are other
measures that directly bear on innovation
where Government needs to do more,
taking forward our programme of microeconomic reform.
This report sets out a strategy for
innovation that will be backed by the
resources of the DTI, the RDAs and other
relevant parts of Government. Chapter 1
sets out in more detail the economic
reasons why the innovation challenge is
so important, and Chapters 2 to 7 set out
our policies for achieving a step change
in the UK’s innovation performance.
In summary, we will take the following
direct measures in the seven key areas
where Government can most effectively
act to raise the rate of innovation:
Overview
(i) Sources of new knowledge – ideas and
inspiration come from a range of sources.
The UK has a strong science, engineering
and technology base. But our analysis
shows that the UK record of knowledge
transfer and exploitation by business has
been generally weak.
In recent years the Research Councils
have increased significantly the rate
of knowledge transfer from their research
activities. But we believe that there are
more opportunities for much greater
collaboration between the Research
Councils and business in strategic areas
of research.
Government action to encourage
businesses to develop and implement new
products and services has become a high
priority. Given this, the UK Government
needs to harness its resources more
effectively in promoting technological
innovation.
The Director General of Research
Councils will agree with each of the
Research Councils, plans and goals for
increasing the rate of knowledge
transfer and the level of interaction with
business through activities such as
collaborative research, start-up
companies and the Small Business
Research Initiative (SBRI). Where these
are not already in place, Research
Councils will establish measures of
collaboration, so that progress can be
monitored. Furthermore, the level of
interaction with business by each
Research Council will be subject to peer
review within Research Councils UK and
to external challenge by a group
including business representatives
(Chapter 3).
We need to improve both the supply side
and the demand side of our research
performance. Fundamental to our approach
will be setting priorities, taking account of
the growing international mobility of
business R&D.
In conjunction with business, the
science, engineering and technology
(SET) base, Government more widely
(including the DAs and RDAs) and other
stakeholders, we will develop a
Technology Strategy, with a medium to
long term perspective, which will
provide a framework for setting policy
priorities and improving the
effectiveness of business support.
The Strategy will also be available to
help guide Government-wide R&D,
European programmes and RDAs
support for science and technology and
to inform the future development of
technical regulations, measurement
and product standards, and identify
opportunities for innovative public
procurement (Chapter 3).
We will work closely with business to
‘pull through’ and exploit technologies
from the UK and the international
research base by providing some of the
funding, and sharing some of the risk, in
taking new technologies to the market
(Chapter 3).
We will ensure that the objectives of our
National Measurement System (NMS)
are developed to include a greater focus
on innovation. The NMS will be tasked
with increasingly focusing research
programmes on emerging technology
areas, working in line with the
Technology Strategy, initiating 15-25
co-funded research projects each year
in collaboration with industry and
facilitating up to 250 product development
projects per year. We will facilitate
20 exchange secondments between
National Measurement Institutes and
industry to promote additional
knowledge transfer (Chapter 4).
We will set up a visionary, new
programme of Measurement for
Emerging Technologies. This will
address work on nanotechnology and
the biosciences and will be closely
integrated into the Technology Strategy.
INNOVATION REPORT
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Businesses need to be able to make wellinformed decisions on how to manage
their IP.
The Patent Office will develop a major
awareness-raising programme which
will target SMEs to ensure they can use
the IP system effectively. This will build
on the success of current initiatives such
as HM Customs and Excise-led
“Business Advice Open Days”, and will
involve the provision of training to
business advisors in IP and launching a
national project providing free IP advice
in the second half of 2004. It will also
target ‘innovators of the future’ such as
business studies, design and technology
students and entrepreneurs to raise
awareness of IP (Chapter 4).
The Patent Office will, in conjunction
with rights holders and enforcement
bodies, develop a new national strategy
for dealing with IP crime, to be launched
by summer 2004. In particular, this will
involve improving the evidence base,
removing administrative overlap, and
setting out agreed priorities (Chapter 4).
The Lambert Review of UK UniversityBusiness Collaboration8 has also identified
many specific barriers to collaboration,
which still remain. Proposals in the
Lambert Review for removing or reducing
these are summarised in Chapter 3. The
Government will be responding soon to
these proposals.
(ii) Capacity of companies to absorb new
knowledge – the ability of firms to absorb
new ideas and turn them into action is
critical to a high innovation performance.
We need to make certain that our
managers have the technological and
management skills to innovate, and that, as
a country, we put more resources into
technician and intermediate skills where
international comparisons show our record
is very poor.
8 http://www.hmtreasury.gov.uk/consultations_and_legislation/lambert/cons
ult_lambert_index.cfm
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INNOVATION REPORT
The SBS will make promoting
innovation and knowledge transfer one
of the key delivery themes for Business
Link. Business Link will tailor assistance
to a company’s specific needs depending
on its level of innovation capability and
the stage it has reached in the product/
service life cycle. Advisory services will
include: Intellectual Property Rights
advice; assistance with R&D grants and
Knowledge Transfer Partnerships;
brokering collaboration between
companies and Higher Education
Institutions; and alerting SMEs to public
procurement opportunities (Chapter 2).
The DTI and Design Council will deliver
three campaigns to show how
innovation can be enhanced through the
improved use of design in
manufacturing, emerging technology
and services businesses. Initially this will
involve up to 10 industry sectors over
the next two years; the learning will be
shared with up to 5000 companies
(Chapter 2).
The DTI and Design Council will also
work in partnership with UK universities
to establish design learning for science,
engineering and business management
students and develop design demonstration activity within Technology
Transfer Offices (TTOs) (Chapter 2).
(iii) Access to finance – the UK has
relatively sophisticated and large financial
markets, and an excellent venture capital
industry, but there are some gaps.
The new DTI product supporting
investment in the Assisted Areas will
have as its main objective the creation
of sustainable, high-value investment
and jobs rather than simply maximising
the number of jobs (Chapter 6).
In order to improve access to finance for
women entrepreneurs, the Government
will ask the BBA (British Bankers’
Association), BVCA (British Venture
Capital Association), and the NBAN
(National Business Angel Network) to
Overview
work together to identify what measures
should be taken to improve access to
mainstream finance (Chapter 2).
(iv) Competition and Entrepreneurship –
provides a stimulus to innovation and
helps determine the intensity of
competition and the ability of firms to spot
opportunities and manage risks.
To build on the success of the Science
Enterprise Centres we will work with
Business Schools and Management
Institutes to develop curriculum material
and case studies to aid the teaching of
the skills underpinning the management
of high tech, fast growth businesses, as
well as new product development
(Chapter 2).
(v) Customers – demanding customers
create the markets for new and innovative
products and services. The public sector
purchased £109 billion of goods and
services in 2001/02 and can play a major
part in creating a demand for Innovation.
In order to build on existing initiatives
the Office of Government Commerce
(OGC) will produce best practice
guidance for policy, project and
procurement staff on capturing
creativity from suppliers by March 2004
(Chapter 5).
To support the Government’s efforts to
improve its performance as an
intelligent customer, the DTI will work
across Government to look at the
opportunities for, and barriers to,
innovation in key public sector markets.
We will pilot this approach by working
with NHS Estates to look at how we can
draw innovation through the supply
chain and with the Department of Health
(DoH) to address barriers to greater
uptake of telecare and telemedicine
technologies. DTI will also ask its
industry-led Innovation and Growth
Teams (IGT) to identify where public
procurement could better facilitate
innovation and how this could be
achieved (Chapter 5).
(v) Regulatory environment – competition
policy and regulatory policy, can affect the
level of innovation. There is an important
opportunity to increase innovation through
more use of outcome-based regulations,
which do not specify the technology to be
used, and therefore incentivise companies
to innovate. To encourage Government
Departments we will focus on specific
examples to test how this approach can be
applied in practice.
A cross-Government project team led
by DTI including Department for
Environment, Food and Rural Affairs
(Defra), Department for Transport (DfT),
Cabinet Office and the Environment
Agency (EA), will look at three areas of
environmental policy and will focus on
how the regulations are designed or
whether there are alternatives to
regulation. The project team will work in
consultation with business and other
stakeholders (Chapter 5).
(vi) Networks and collaboration – firms
need to collaborate with many different
organisations and to draw ideas from
many different places, and there is
evidence to suggest that this is an area
where we have an opportunity to improve.
The DTI, RDAs and DAs will work in
closer partnership to ensure that
national policy and priorities take full
account of regional priorities, and that
they also shape more effectively what is
delivered by and through the RDAs at
the regional level (Chapter 6).
We will agree with the RDAs a set of
regional innovation indicators and assist
them to set up Regional Science and
Industry Councils or similar bodies
(Chapter 6).
Clusters play a key role in driving
economic growth and innovation in
localities, cities and regions. To further
assist the RDAs’ work with clusters, we
are publishing alongside this report the
conclusions of the work by Ecotec on
success factors in cluster development
INNOVATION REPORT
15
and the Ecotec Practitioners Guide to
Cluster Development (Chapter 6).
We will –
work with the TUC to explore ways in
which unions can respond to the
challenge of helping companies to
innovate;
building on the work already undertaken
by the TUC and CBI on productivity,
build on the work to establish an
Innovation Taskforce, with joint unionbusiness leadership, to undertake
additional work to identify how the
innovation agenda can be spread through
Britain’s workplaces (Chapter 2); and
improve international science and
technological collaboration by increasing
the number of International Technology
Promoters by a third and doubling the
number of outward industrial
secondments. We will also seek to
increase the participation of UK
businesses in European programmes,
such as Eureka, starting with a new
service to help access to the EU’s sixth
Framework programme (Chapter 7).
We live in a fiercely competitive global
economy. If we are to enhance our
productivity and raise our standards of
living we need to improve radically our
innovation performance. And we will need
to innovate continuously in the future so
that we can hold our own against fastmoving new economies.
Since coming to power, the Government
has consistently sought to create the
conditions necessary for the UK to become
a high value-added, high-tech economy
and we are beginning to see the first signs
of success. This report sets out the further
steps we are taking to create the best
conditions for innovation in industry so
that we can all move forward together
to meet the innovation challenge.
16
INNOVATION REPORT
Chapter 1
The innovation
challenge
INNOVATION REPORT
17
Summary
Global competition is increasing as a result
of trade liberalisation, technological change
and reductions in transport and
communication costs. UK based
businesses will find it increasingly difficult
to compete on low costs alone in labour
intensive industries exposed to
international competition. The challenge
for businesses is to compete on the basis
of unique value.
sources of new technological knowledge;
We have defined innovation as the
successful exploitation of new ideas and it
is central to meeting this challenge.
It involves investments in new products,
processes or services and in new ways of
doing business. Measures to develop the
skills and creativity of the workforce are
often an essential prerequisite. The speed
of technological change and market
responses make the challenge to innovate
urgent and continuous.
They help us to identify current strengths
and weaknesses of the UK innovation
system. A highly abridged summary
is provided in this chapter but the more
detailed analysis is contained in an
accompanying economic report1.
Overall UK innovation performance
appears to be, at best, average compared
to our major competitors. This is reflected
in the large productivity gap which exists
between the UK and its major competitors.
Innovation performance accounts for a
significant proportion of this gap. On the
whole, UK firms face a challenge: how to
raise their rate of innovation?
Innovation is a complex process so
understanding why the UK has a relatively
modest innovation performance is not
straightforward. We drew on an extensive
review of the international innovation
literature and consulted with a group of
leading experts in the field.
As a result we have identified seven critical
success factors for innovation
performance. They are:
capacity to absorb and exploit new
knowledge;
access to finance;
competition and entrepreneurship;
customers and suppliers;
the Regulatory environment; and
networks and collaboration.
Our vision is of the UK as a key knowledge
hub in the global economy. A country that
will have maintained its outstanding
tradition in the advance of scientific and
technological knowledge while developing
a similar level of performance in turning
knowledge into exciting and novel
products and services.
This Report is part of the broader set of
changes that DTI is now putting in place.
The new DTI strategy2 has identified
priorities for action that will encourage
more business innovation (including
knowledge transfer and skills). We have
re-engineered our business support
products, reducing the myriad number of
individual programmes. The resources
freed up by rationalisation will be used to
fund new, more strategic and better
targeted DTI initiatives.
The Report complements the Lambert
Review of University-Business links as
well as the cross-Government Skills
Strategy. It makes proposals to strengthen
UK performance against all the success
factors building upon initiatives that have
gone before.
1 DTI Economics paper no. 7 –
http://www.dti.gov.uk/economics
2 Prosperity for all: The Strategy; DTI 2003 –
http://www.dti.gov.uk/about/strategy2003.html
18
INNOVATION REPORT
Chapter 1
The innovation challenge
What is innovation?
1.1. Innovation in this Report is defined as
the successful exploitation of new ideas.
Ideas may be entirely new to the market or
involve the application of existing ideas
that are new to the innovating organisation
or often a combination of both. Innovation
involves the creation of new designs,
concepts and ways of doing things, their
commercial exploitation, and subsequent
diffusion through the rest of the economy
and society. It is this last – diffusion –
phase from which the bulk of the economic
benefits flow. Most innovations are
incremental – a succession of individually
modest improvements to products or
services over their life cycle. But a few will
be dramatic, creating entirely new
industries or markets.
1.2. Innovation involves experimentation
and risk taking. Some attempts to innovate
will fail, but across the economy the
successes outweigh the failures. And the
failures themselves generate new
knowledge, which if evaluated correctly,
can improve the chances for future
success. The risk of failure justifies the
potentially high returns from successes,
which provide the incentive to innovate in
the first place. Successful innovation-led
companies have a number of common
characteristics (Box 1.1).
Why is it important now?
1.3. Innovation is vital to most businesses
operating in the UK if they are to survive
and grow in the long term. But there are
five reasons why innovation matters more
for businesses and the people who work in
them today.
Box 1.1
Characteristics of
innovation-led companies;
a world wide focus, often requiring
early expansion overseas;
a balanced growth strategy, based on
organic growth and targeted
acquisitions to enter new markets or
acquire critical expertise;
a balanced investment strategy;
above average investment in market
led research and development (R&D);
a focus on what really matters to the
customer; and
an innovation culture with corporate
leadership that expects growth through
development of new products and
services.
Source: R&D and Value Added Scoreboards.
Markets around the world are being
liberalised. This brings opportunities
from expanding trade. And firms can
locate all or part of the production
process or service wherever the economic
advantage is greatest. But UK-based
firms also face competition from firms in
countries with relatively low labour costs
and where education and skills levels are
high (Figure 1.1). For example, hourly
labour costs in South Korea are just over
half UK levels, but the proportion of
graduates in the working age population
is almost identical.
Long-term reductions in the costs of
transportation and communication have
also opened up new markets and faster
global communications mean that
consumers learn about new fashions,
ideas and products faster than ever
before. The cost of sea freight has fallen
by two-thirds since 1920, air transport by
five-sixths since 1930. Transatlantic
telephone calls are now almost free on
the internet3.
3 Legrain, Philippe: “Open World: the Truth about
Globalisation”, pp108.
INNOVATION REPORT
19
Figure 1.1
Hourly labour costs of production workers in manufacturing, 2002
Sri Lanka (2001)
Mexico
Brazil
Taiwan
Hong Kong
Singapore
Korea
Ireland
Australia
UK
Japan
US
Switzerland
Denmark
Germany
Norway
0
20
40
60
80
100
120
Labour compensation per hour (US=100)
140
Note: Comparisons are illustrative, as they are affected by exchange rate movements.
Source: US Bureau of Labor Statistics
Science and Technology are providing
new opportunities for businesses to
compete based on exploiting knowledge,
skills and creativity to produce more
valuable goods and services. Industries
are being created, such as
biotechnology, and traditional ones are
being transformed (e.g. growth of
technical textiles). Because they rely on
knowledge and skills, they provide areas
where high wage, developed economies
can maintain a competitive advantage
over low wage, unskilled ones.
Services, accounting for over 70% of the
economy, are becoming more
technology intensive. Technology is
being used to improve business
processes and customer service in
sectors such as retail, hotels and banking
(Box 1.2), and to develop new products
combining creative strengths with the
latest technology, such as computer
games (Box 1.3). Many high technology
manufacturers now make more money
from services than they do from
manufacturing4.
4 Wise, Richard and Baumgartner, Peter: “Go Stream:
The New Profit Imperative in Manufacturing”, Harvard
Business Review, Sept – Oct 1999.
20
INNOVATION REPORT
Box 1.2
The impact of the internet on banking
Internet banking has come a long way.
The UK has around 7.5m internet banking
customers, attracted by a form of banking
that is easily accessed anywhere and
anytime and offers a wide range of
services (e.g. carry out share transactions,
check balances). The internet has allowed
new entrants to enter the market, forcing
established banks to provide similar
services, reduce prices and provide more
innovative products and greater choice.
Peter Horrell (Director, Transactions,
Trade and E-channels) of Barclays has
suggested that, if current trends
continued, by 2008 at least 40% of
business transactions would be taking
place online, and that further developments
in technology, security and education will
result in greater and more sophisticated
use of the internet as the standard, rather
than an additional, channel.
Chapter 1
The innovation challenge
Box 1.3
Computer games development
Electronic games have started to emerge
as mainstream entertainment to the
point where the global industry is worth
some $17 billion per year. In 2002, the
UK leisure software market was worth
£1.1 billion5 and the computer games
sector employed approximately 20,000
people, with 6,000 in development alone.
Playable through a growing number of
platforms – PC, dedicated games
consoles, mobile devices, online and
interactive TV – games offer an
increasingly sophisticated experience for
the player in terms of game play, nearcinematic visual impact, sound effects
and music.
Within this rapidly growing industry, the
UK’s games developers have a global
reputation for their combination of
creativity, innovation and originality,
having produced some startlingly
imaginative and highly successful titles.
The small, but fast-growing, cluster of
Scottish games developers has made a
particular impact in the global market
place. For example, Rockstar North, an
Edinburgh-based development studio,
produced the best selling game of 2002
with Grand Theft Auto III. The specialised
digital entertainment research centre
established by the University of Abertay
International Centre of Computer Games
and Virtual Entertainment (IC-CAVE),
provides valuable technology and knowhow support to the games community.
The Proof of Concept Fund has given a
particularly powerful boost to the
commercialisation of research in this
area and, after four years of participation,
the Digital Media and Creative Industries
cluster is beginning to emerge as one
of the most successful participating
industry groups in terms of commercial
outcomes.
Lionhead Studios achieved critical and
commercial acclaim with their PC title,
Black and White, which sold over
2m copies. John Riccitiello, President
and Chief Operating Officer of
Electronic Arts, the world’s largest
games publisher and a significant
inward investor, recently said in an
interview in trade magazine Develop,
“Many of the greatest games in the
history of our industry have originated
in the UK and I expect that trend to
continue.”
The UK also excels in the technologies
that drive the game playing experience.
Guildford-based Criterion, for example,
is the leading developer and supplier
of middleware, software tools that
provide basic functionality and game
programme code. These tools enable
developers to concentrate on the more
creative elements of games development.
Criterion’s Renderware software is
used by developers worldwide, and
has been used in games such as
Burnout 2 and Pro-Evolution Soccer 2.
Hollywood has for some time seen a
“games spin-off” as a valuable
merchandising revenue stream.
However, the creative flow can go the
other way and Lara Croft, developed
and owned by the UK’s Eidos Plc, is
arguably the most widely recognised
cyber character globally and has
inspired two blockbuster films.
5 ELSPA, White Paper: Computer and Video Games:
A British Phenomena around the World (2003).
INNOVATION REPORT
21
Increasing environmental concerns are
acting as a stimulus to innovation.
Demand for environmental improvements
– for example, reducing CO2 emissions
and volumes of waste – may require
changes in the economy and to the way
we live. To deliver these changes the
market has to generate innovative uses of
technology, new ways of doing business
and new consumer attitudes (Box 1.4).
There is a particularly strong case for
Government to join up its innovation and
environmental policies to reduce the
costs of environmental damage.
Box 1.4
Environmental benefits from innovation
Kronospan have demonstrated economic
and environmental benefits from using
new technology to recover re-usable
water and fibres from effluent generated
during wood fibreboard manufacture.
The manufacture of medium density
fibreboard (MDF) at Kronospan Ltd’s site
in North Wales generates large amounts
of effluent, which was previously taken
off site for treatment and disposal at
huge cost and environmental impact.
The company installed a membrane
system that allows virtually 100% material
recovery and re-use of treated water.
Costs of handling effluent were cut by
half. The benefits of using a membranebased system at Kronospan Ltd include:
net annual cost savings of over £250,000;
disposal of nearly 48,000 m3/year of
effluent avoided;
mains water consumption reduced by
44,000 m3/year; and
replacing about 480 tonnes/year of
materials with recovered solids.
1.4 The speed of changing technology and
the extent to which new products and
services can change market conditions mean
that the challenge to innovate is urgent
and continuous. UK-based businesses
will find it increasingly difficult to compete
on low costs alone in labour intensive
industries exposed to international
competition. The challenge for businesses
is to compete on the basis of unique value.
1.5. The UK is not alone in facing this
challenge. European leaders agreed at
Lisbon in spring 2000 to make the EU “the
most dynamic, knowledge-driven economy
in the world by 2010”. Innovation is
integral to achieving this vision. The issues
covered in this Report match closely the
agenda set out by the European Commission
in its recent Communication on
Innovation6, and Governments around the
world are engaging in policies to promote
innovation (see Box 7.1 in chapter 7).
How is the UK doing?
1.6. We have consulted a distinguished panel
of leading academic experts in drawing up
the analysis underpinning this Report. This
analysis has been published separately7.
The main points concerning the UK’s
innovation performance are set out below.
The latest international comparisons of
data on business R&D (Table 1.1) show
the UK well behind the US and roughly
equal to the EU average. However, it is
encouraging that after a steady period of
decline from 1.5% of GDP in 1981 to
1.16% in 1997, we have seen a move in
the right direction, to 1.24% in 2002.
Adjusting for size of economy, UK firms’
patenting activity at patent offices in
Europe, Japan and the US8 lies well
behind firms in Japan, Germany and the
US and is just below the European
average (Figure 1.2).
6 http://www.cordis.lu/innovation-policy/communications
7 DTI Economics paper no. 7 –
http://www.dti.gov.uk/economics
8 These are described as triadic patents.
22
INNOVATION REPORT
Chapter 1
The innovation challenge
Table 1.1
Expenditure on business R&D as a percentage of GDP, 1992-2002
1992
1997
1998
1999
2000
2001
Finland*
1.21
1.79
1.94
2.20
2.41
2.42
Germany
1.66
1.54
1.57
1.70
1.75
1.76
France*
1.49
1.39
1.35
1.38
1.37
1.37
UK
1.39
1.16
1.17
1.23
1.19
1.23
EU average*
1.18
1.13
1.14
1.19
1.22
1.24
US
1.90
1.91
1.94
1.98
2.04
2.10
OECD*
1.49
1.48
1.49
1.53
1.56
1.62
2002
1.75
1.24
2.06
*Most recently available figures are for 2001.
Source: OECD/ONS
Although systematic data is lacking, it
appears that the UK lags behind the US
and major Organisation for Economic
Cooperation and Development (OECD)
economies in the take- up of best
practice improvements such as lean
manufacturing.
However there are significant differences
between sectors reflecting important
differences in opportunities for
innovation as well as performance.
The UK has some strong sectors – such
as pharmaceuticals, aerospace,
biotechnology, financial services,
telecommunications and creative
industries (Box 1.3) – and strong
individual companies in other sectors.
Data from surveys, which rely on
broader measures of innovation, paint
a similar picture with UK performance
weaker than its international peers.
Figure 1.2
Number of patents per million population, 1998
90
80
80.9
70
69.9
60
52.2
50
40
34.0
30
31.7
20
16.9
12.4
10
0
Japan
Germany
United
States
France
United
Canada
Kingdom
Italy
Note: These are triadic patents registered in the EU, US and Japan.
Source: OECD
INNOVATION REPORT
23
1.7. Overall UK innovation performance
appears to be, at best, average compared
to our major competitors. This is reflected
in wider measures of economic
performance:
UK productivity lags behind many
leading economies. The gap between the
US and the UK is substantial whatever
measure is adopted;
In contrast, all the productivity gap with
Germany is due to lower levels of
investment in capital and skills. The rate
of return on investment in R&D is lower
in Germany than in the UK. Innovationrelated factors such as organisational
culture and business methods also
contribute to the unexplained “other”
productivity differential.
UK productivity is relatively low in most
sectors. Much of the overall
productivity gap arises in service
industries such as retail and distribution,
rather than manufacturing; and
1.8. The analysis suggests that UK business
faces a challenge: how to raise its rate of
innovation? In a recent DTI Economics
Paper10, Professors Michael Porter and
Christian Ketels made this point very clearly:
innovation is one of the key sources of
productivity growth alongside
competition, enterprise, skills and
investment 9. A lack of investment in
capital, skills and R&D all contribute to
explaining the productivity gap (Figure
1.3). The chart shows that, compared
with the US and France, a significant
proportion of the labour productivity gap
is due to lower volumes of R&D.
“However, the UK currently faces a
transition to a new phase of economic
development… We find that the
competitiveness agenda facing UK leaders
in Government and business reflects the
challenges of moving from a location
competing on relatively low costs of doing
business to a location competing on unique
value and innovation. This transition
requires investments in different elements
of the business environment, upgrading of
company strategies, and the creation and
strengthening of new types of institutions.”
Figure 1.3
Contributions to the UK productivity gap
with the US, France and Germany, 1999
% difference with UK
30
25
1.9. A similar analysis underpins the Scottish
Executive document “Framework for
Economic Development in Scotland” and
the “Smart, Successful Scotland” strategy.
20
How did we try to explain the
causes of UK performance?
15
10
5
0
-5
US
Other
R&D
France
Germany
Skills
Physical capital
1.10. Innovation is a complex process so
understanding why the UK has a relatively
modest innovation performance is not
straightforward. To help us do this we drew
on an extensive review of the international
innovation literature, aided by a panel of
experts11. We also drew heavily on analysis
by the AIM Management Research Forum
and the OECD.
Source: Crafts and O’Mahoney (2001).
9 HM Treasury, Productivity in the UK: The Evidence and the
Government’s Approach (2000).
24
INNOVATION REPORT
10 M Porter and C Ketels, UK Competitiveness: moving to
the next stage, DTI Economics Paper No. 3, 2003; pp5.
http://www.dti.gov.uk/economics
11 DTI Economics paper no 7. –
http://www.dti.gov.uk/economics
Chapter 1
The innovation challenge
As a result we have identified seven critical
success factors for innovation
performance. They help us to identify
current strengths and weaknesses of the
UK innovation system and to develop
proposals to improve its performance.
Success factors for
UK innovation performance
1.11. What follows is a highly abridged
version of the supporting analysis,
summarising the UK’s performance against
the seven factors:
sources of new technological knowledge
play an important role in shaping
innovation systems. Science-based
technologies are increasing in
importance. New products and services
tend to embody a wider range of
technologies, increasing the complexity
faced by individual firms. UK-based firms
make extensive use of customers and
suppliers as knowledge sources. The UK
Science, Engineering and Technology
(SET) base is highly productive and the
UK has world class design expertise.
Relatively low levels of innovation spend
mean that UK-based firms are less well
placed to benefit from these or from
comparable sources internationally;
the capacity to absorb and exploit
knowledge defines a firm’s ability to turn
knowledge into new products, processes
or services. Fundamentally it is people
who create knowledge, manage
businesses and innovate. Poor skills
amongst managers and the workforce
more generally have hindered
performance. The culture within UKowned firms appears to place less
emphasis on creativity. Few firms show
evidence of systematic adoption of the
human resource management practices
typically associated with effective
employee relations and a workplace
culture supportive of innovation;
all investments in innovation need
access to finance. Relatively lower levels
of innovation spend are probably more
due to a lack of incentives and capacity
than a shortage of funds, although some
financing gaps exist. A past history of
macro-economic instability, weaknesses
in skills and corporate strategies have all
contributed to lower levels of spend;
competition provides a stimulus to
innovation and helps determine the
intensity of competition and the ability of
firms to spot opportunities and manage
risks. Weak competition policies in the
past have reduced incentives to
innovate; and entrepreneurship rates
are, at best, moderate;
customers and suppliers put pressure on
firms to deliver better quality goods and
services and provide opportunities for
innovation. Many UK-based firms compete
in global markets and the UK is an
attractive market for innovative firms from
abroad. The public sector purchased £109
billion of goods and services in 2001-0212.
There are major opportunities to make
public sector procurement more effective
in stimulating innovation while achieving
spending objectives and value for money;
the regulatory environment affects
the possibilities and incentive structures
for innovation. OECD comparisons
show the UK to be relatively lightly
regulated, although there are continuing
business concerns about the impact of
new regulations. Some firms appear to
lack awareness of Intellectual Property
Rights (IPR); and
networks and collaboration are
important means of accessing knowledge.
Businesses are increasingly looking
outside their sectors for opportunities
to collaborate. UK-based firms appear
to have many, varied network
relationships, but the infrastructure is
patchy and relationships appear to be
largely driven by short-term decisions.
12 HMT/Office for National Statistics, Public Expenditure
Statistical Analysis, May 2003.
INNOVATION REPORT
25
Figure 1.4
How Government policies influence innovation
Opportunities
Enablers
Public procurement
Regulations
Intellectual property
framework
Measurement system
Standards
Business
Innovation
Advice and support
for business
Best practice programmes
Support for developing
new technology
Help accessing finance
R&D tax credits
Support for inward
investment
Access to global
knowledge base
Building blocks of innovation: a supportive climate
Macroeconomic stability
Competition policy
Education and training policy
Physical and IT infrastructure
Areas of Government influence
1.12. Ultimately innovation depends on the
knowledge, skills and creativity of those
working in businesses. But Government
has an important role in creating the right
environment for innovation. Figure 1.4 sets
out the main mechanisms and channels
through which Government – at various
levels – influences business innovation.
1.13. The Government has already laid the
foundations of an innovation-driven economy
in areas such as macro-economic policy,
fiscal policy, competition policy, trade
policy and education and skills (Box 1.5).
1.14. Since 1997 we have produced three
White Papers, “Our competitive future –
Building a knowledge driven economy”
(1998), “Excellence and Opportunity – a
Science and Innovation Policy for the 21st
Century” (2000) and “Opportunity for All
in a World of Change – Enterprise, Skills
and Innovation” (2001). In these we set in
motion a series of micro-economic measures
to stimulate innovation, such as increased
investment in the science base, incentives
to encourage research institutions and
26
INNOVATION REPORT
Trade policy
Science policy
universities to commercialise their
research, and measures to encourage more
small businesses to start up and innovate.
This Report builds on the progress made in
those White Papers.
1.15. Policies and programmes affecting
innovation are determined at a variety of
levels. In some cases, the role of the UK
Government is to influence developments
on a European or global scale. Many
policies in this Report cover the UK as a
whole. But significant aspects of the
innovation policy agenda in Northern
Ireland, Wales and Scotland are the
responsibility of the Devolved
Administrations (DAs). Where matters are
devolved, we will work with the DAs to
address the innovation challenge that we
all face. In England, the Regional
Development Agencies (RDAs) are
significant players in innovation policy.
Chapter 6 sets out how DTI and RDAs will
work in closer partnership to ensure that
national policy and priorities take into
account regional priorities.
Chapter 1
The innovation challenge
Box 1.5
Putting in place the building blocks for successful innovation
Support for investment – Reforms to
monetary and fiscal policy –
independence for the Bank of England
and the code of conduct on fiscal
stability – can have a significant positive
impact on investment in innovation.
The new tax incentives for R&D are
comparable with, or more generous
than, those in other OECD countries.
The small firms rate of corporation tax
has been reduced to 19%, alongside
the creation of a new zero starting rate.
The Government has also introduced
financial incentives for venture capital.
Better education and training – Between
2000/01 and 2005/06, education spending
will increase by 36% in real terms
(forecast to rise to 5.5% of GDP in
England by 2005/06). This will be
supported by demand and supply side
reforms to improve effectiveness. These
include changes to improve standards
and skills delivery. And through the new
Skills Strategy work will be done to
boost demand for learning and make
skills development more responsive to
the needs of employers.
Competition Policy – Recent measures
include introducing the Competition Act
1998, with two major provisions to guard
against anti-competitive agreements and
abuse of dominance, and the Enterprise
Act 2002. The Office of Fair Trading (OFT)
now has powers to refer markets to the
Competition Commission where they
may not be working well. Other changes
include improvements to the mergers
and monopolies investigation regimes,
and criminal penalties for those
engaging in hard-core cartels.
Better infrastructure for business
Planning – The planning system is
being reformed so that it will deliver a
higher quality service for the business
community, helping competitiveness
and productivity. The Scottish
Executive has taken forward a
number of initiatives to modernise
the Scottish planning system
including a review of Strategic
Planning Conclusions and Next Steps
(June 2002) and the updating of
National Planning Policy on Economic
Development (November 2002) and
Planning for Housing (February 2003).
Transport – The Department for
Transport’s (DfT) latest progress
report, published in December 2002,
shows that a good start has been
made in delivering the improvements
envisaged in the 10 Year Plan.
Increased funding is in place; new
projects are being planned and
delivery is being improved.
Broadband – The Government is
working hard to deliver its target for
the UK to have the most extensive
and competitive broadband market in
the G7 by 2005. Broadband networks
now cover some 80% of the UK
population (although the coverage
challenge is much greater in more
remote parts of the UK) and the
market is more competitive than our
EU G7 neighbours and the USA. The
Government hopes to see broadband
available to every community in the
UK by 2005. Departments across
Government will spend £1 billion on
broadband connections, bringing
broadband to every school in England
by 2006 and wiring up every GP’s
surgery and every hospital.
INNOVATION REPORT
27
Next steps
1.16. Our vision is of the UK as a key
knowledge hub in the global economy.
A country that will have maintained its
outstanding tradition in the advance of
scientific and technological knowledge
while developing a similar level of
performance in turning knowledge into
exciting and novel products and services.
In terms of business R&D and patenting we
will aim to be the leading major country in
Europe within ten years.
1.17. This Report is part of a broader set
of changes that the DTI is putting in place.
The DTI strategy13 has identified five
priority areas for the next five years.
We want to:
strengthen knowledge transfer from
business to business and between
businesses, academic communities and
other knowledge creators and providers;
maximise people’s potential in the
workplace;
ensure competitive markets;
strengthen regional economies; and
forge closer partnerships with key
economic players nationally and
overseas.
1.18. Furthermore, the DTI is continuing to
refine its portfolio of business support
products. We have rationalised the number
of products that are available to business
to release resources. This will make it
easier for business to access Government
support when needed and provide greater
focus and clarity on where the DTI is
adding value. Furthermore the work of the
Innovation and Growth Teams (IGTs) has
played an important role in identifying
priorities in sectors such as aerospace
(Box 1.6).
13 Prosperity for All: The Strategy, DTI 2003;
http://www.dti.gov.uk/about/strategy2003.html
28
INNOVATION REPORT
Box 1.6
DTI Sector Innovation and Growth Teams
In the last couple of years the DTI has
set up a series of IGTs. These are teams
of business people, trade union officials,
industry experts and officials from
various Government Departments who
have come together to develop a longterm vision for the industry sector and to
advise the Government on policies that
need to be adopted by the sector to
innovate and grow. They are developing
close ties with the Sector Skills Councils
to identify skill needs.
Seven IGTs have been established and
five have produced reports (automotive14,
environmental goods and services15,
aerospace16, software and digital content,
chemicals17, bioscience18 and electronics).
The construction sector has also
produced a similar report19.
There are common themes arising from
IGT recommendations that are consistent
with the conclusions emerging from this
Report:
the need to raise productivity through
business improvement;
the need for businesses to encourage
the demand for skills and help identify
significant gaps;
the need for central Government and
regions to work closely together;
the need for regulations to be
innovation-friendly; and
the important role of Government
as a customer in some industries
(bioscience, aerospace).
14 Automotive IGT report (May 2002);
http://www.autoindustry.co.uk/companies/aigt
15 Environmental Goods and Services IGT report
(November 2002); www.jemu.org.uk/igt/
16 Aerospace IGT report (June 2003);
http://www.dti.gov.uk/aerospace/aigt.htm
17 Chemicals IGT report (December 2002); http://www.dti/cigt
18 Bioscience IGT report (November 2003);
http://www.dti.gov.uk/bio-igt/bigt-report.html
19 The Report of the Construction Task Force to the Deputy
Prime Minister (July 1998);
http://www.dti.gov.uk/construction/rethink/report/
Chapter 1
The innovation challenge
1.19. This Report proposes modifications
and changes in the direction of
Government policy that will unfold over a
number of years. These are balanced with
specific proposals that will deliver change
within a short period of time.
1.20. We have prepared an action plan
summarising the main recommendations
together with milestones for their
implementation and a statement of
responsibilities. This can be found at the
end of this Report.
1.22. Recognising the innovation challenge
facing the UK, the Prime Minister has
asked the Secretary of State for Trade and
Industry to chair a Ministerial team to lead
the innovation agenda across Government
and drive forward the implementation of
this Report. We discuss cross-Government
innovation policies in more detail in
Chapter 5.
1.21. However, achievement for a
significant and sustained impact on UK
innovation performance requires a strategy
for the medium to long term. Long-term
success requires action across the whole
range of Government policies18. It requires
partnerships within Government and with
other players in the innovation system,
such as universities and research
organisations. Meeting the innovation
challenge is a matter of urgency but
historic weaknesses in innovation
performance are not resolved overnight.
Nevertheless, we want to see more:
Innovation in business – that is, more
new products and services and more use
of new business processes, all driven by
customers and markets. An increased
rate of innovation will be necessary to
reduce the productivity gap with our
major competitors and continue seeing
improvements in living standards and
quality of life.
Businesses engaging in innovation.
While we will never have 100% of
businesses engaged in innovation we
would like to see an increase in the
proportion of businesses engaged in
innovation.
18 The European Commission also make this point in
Investing in Research: an Action Plan for Europe [COM
(2003) 225 final], (adopted 30 April 2003).
INNOVATION REPORT
29
30
INNOVATION REPORT
Chapter 2
High performance
innovative companies
INNOVATION REPORT
31
Summary
In the future, UK companies will have to
compete more and more on the basis of
unique and innovative products and
services. This will require inspirational
leadership, stronger management skills,
a highly-trained and motivated workforce,
a flexible labour market that promotes
diversity and fair treatment, and
workplaces that recognise environmental
issues and the need for greater resource
productivity.
The Skills Strategy (July 2003) sets out the
Government’s agenda for acting on both
the demand for, and supply of, skills as a
major contributor to raising productivity.
It commits the Government to creating a
more demand-led training system and,
through the DTI, Department for Education
and Skills (DfES) and other relevant
Departments will implement the Strategy
in England, focusing particularly on
co-sponsorship of Sector Skills Councils.
Similar initiatives are underway in Scotland
and Wales. The DfES and DTI are already
jointly pursuing a major programme of
work to follow up the recommendations of
the Council of Excellence in Management
and Leadership. But more needs to be done:
co-sponsorship of the Skills for Business
network1 to enhance the capacity and
capability of Sector Skills Councils to
increase employer leadership on skills.
Using our sponsorship of RDAs to
ensure the effective development of
Regional Skills Partnerships; and
working with DfES and the Department
for Work and Pensions (DWP) to align
our targets and objectives towards the
same goal of raising employment,
productivity and competitiveness.
1 The Skills for Business network comprises employer-led
Sector Skills Councils and the Sector Skills Development
Agency
32
INNOVATION REPORT
The ability of companies to innovate and
deliver high value products and services
critically depends on a high level of
management and technological skills:
to build on the success of the Science
Enterprise Centres (SEC) we will work
with Business Schools and Management
Institutes to develop curriculum material
and case studies to aid the teaching of
the skills underpinning the management
of high tech, fast growth businesses,
as well as new product development.
We see the Small Business Service (SBS)
as having a major role to play in raising the
innovation performance of Small Mediumsized Enterprise’s (SMEs) in England.
Promoting innovation, skills and
knowledge transfer will be made one of the
key delivery themes for Business Link.
To improve the rate of innovation of small
companies, the SBS will ensure Business
Link proactively targets companies with
high innovation potential.
Business Link will tailor assistance to a
company’s specific needs depending on its
level of innovation capability and the stage
it has reached in the product/service life
cycle. Advisory services will include:
intellectual Property Rights advice;
assistance with R&D grants;
assistance with Knowledge Transfer
Partnerships;
brokering collaboration between
companies and Higher Education
Institutes; and
alerting SMEs to public procurement
opportunities.
Chapter 2
High performance innovative companies
Design skills are vital to business innovation,
but not enough companies use design to
connect new ideas with market opportunities.
The DTI and Design Council will:
deliver three campaigns to show how
innovation can be enhanced through the
improved use of design in
manufacturing, emerging technology
and services businesses. Initially this will
involve up to 10 industry sectors over
the next two years, The learning will be
shared with up to 5000 companies; and
work in partnership with UK universities
to establish design learning for science,
engineering and business management
students and develop design
demonstration activity within
Technology Transfer Offices (TTOs).
There is also an increasing need to
recognise our diverse workforce.
In particular, women in the UK are less
likely to start-up a business than their
counterparts in other countries.
To address these factors we will:
ensure that business support is better
targeted to help women who want to
start, or grow, a business; and
work together with private sector
organisations to identify what measures
should be taken to improve access to
mainstream finance.
Innovation ultimately depends on the
knowledge, skills and creativity of people
at work. The Government is committed
to working with industry, trade unions and
employees to supply the skills on which
the development of high value-added
strategies will depend.
we will
work with the TUC to explore ways in
which unions can respond to the
challenge of helping companies to
innovate; and
build on the work already undertaken by
the TUC and CBI on productivity by
establishing an Innovation Taskforce,
with joint union-business leadership to
undertake additional work to identify
how the innovation agenda can be
spread through the UKs workplaces.
INNOVATION REPORT
33
2.1. The challenge for UK companies in
today’s global knowledge economy is to
make innovation a key part of their
strategies, embed innovation into the
workplace and to move from competing
on the basis of low costs to competing
on unique value and innovation.
2.2. Competitive strategies require a new
perspective on management leadership
and employee skills. The DTI’s value added
scoreboard2 shows that the more
competitive firms have, higher-level skills.
Mark Hepworth’s report3 “A regional
perspective on the knowledge economy”
demonstrates that knowledge intensive, high
performing innovative companies drive
demand for skills and reward workers with
higher wages. The Government’s strategy
for raising skills across the workforce, in
order to meet the needs of employers and
learners and contribute to higher
productivity, was set out in the Skills Strategy
published in July 20034. Similar initiatives
are underway in Scotland and Wales.
2.3. The extent to which organisations
innovate depends on their capacity to absorb
new knowledge and implement change.
Innovative companies have an
entrepreneurial culture driven by inspirational
leaders, skilled management, and informed
and engaged employees. In such a culture
both businesses and individuals are able
to reach their full potential.
2.4. Businesses can also improve their
capacity for innovation by fostering
organisational flexibility, raising skills and
employee engagement. Better ways of
working such as flatter structures, family
friendly work practices, teleworking,
information sharing and the involvement of
employees in problem solving help create
a more agile organisation with greater
innovative capacity. The most definitive US
study to date, Manufacturing Advantage5,
2 http://www.innovation.gov.uk/finance
3 A Regional Perspective on the Knowledge Economy in
Great Britain, Feb 2003.
4 “21st Century Skills: Realising our Potential” was
published as a White Paper on 9 July 2003, Cm 5810
http://www.dfes.gov.uk/skillsstrategy/
5 Manufacturing Advantage: Why High performance work
systems pay off, Eileen Appelbaum, et al, Cornell
University Press, Ithaca, 2000.
34
INNOVATION REPORT
found that high performing work systems
may enable firms to shorten the time re
quired to develop new products, introduce
new models or styles, produce a greater
variety of products, increase the extent of
customisation or ease the adoption of new
production technologies. UK and European
research has had similar findings6.
2.5. In the Skills Strategy there is a strong
emphasis on the relationship between
skills and innovation in raising productivity.
The Government is committed to ensuring
that the supply of publicly-funded skills and
training is responsive to employers’ and
learners’ needs, while also acting to raise
demand for skills as an essential element
in securing a flexible labour market and
a competitive economy. The Government
is committed to raise standards in order
to produce tomorrow’s entrepreneurs and
managers. Workforce skills will be essential
for delivery of new goods and services
with lower environmental impacts.
Management skills
2.6 The ability of companies to innovate
and deliver high value products and
services critically depends on a high level
of management and technological skills
and the ability of people to solve problems
faster and better than their competitors.
The difficulty of putting together the right
blend of skills in management teams is one
of the major barriers to growing successful
high value-added businesses.
2.7. We also need draw upon a much wider
and more diverse pool of talent if we are to
unlock the potential of managers in the
future. At present, women comprise 30% of
managers in England, 29% in Scotland and
33% in Wales, and managerial occupations
remain strongly gender-segregated. 6.2%
of all managers in Great Britain are from
ethnic minority backgrounds compared to
8.7% of the overall working age population7.
6 UK:Jonathan Michie and Michael Sheehan, “HRM
practices, R&D expenditure and innovation investment”,
Industrial and Corporate Change, 8(2), 1999. Germany:
Reinhard Hujer and Dubravko Radic, “Holistic Innovation
Success? Complementarities between Flexible Workplace
and Human Resource Management Practices in the
Innovation Process”, paper to the European Association of
Labour Economists conference, Seville, September 2003.
Chapter 2
High performance innovative companies
Box 2.1
High performing start-ups
(Global Entrepreneurship Monitor)
The Global Entrepreneurship Monitor8
(GEM) was initiated by London Business
School and Babson College in 1999 to
better understand the characteristics of a
group of entrepreneurial companies that
accounted for significant levels of job
creation. In addition, in a landmark study
in 1979, David Birch estimated that 66%
of new jobs created in the US between
1969 and 1976 originated from small firms
with less than 20 employees. Subsequent
empirical studies have shown that a small
high-potential group (3-4% of companies
founded in a period) account for between
50-75% of all jobs created 10 years later.
37 countries participate in GEM, which
surveys over 100,000 adults, performs indepth interviews of over 1000 national
experts, and collects standardised
national data from sources such as the
World Bank, International Monetary Fund,
and United Nations.
GEM data suggests that high-potential
entrepreneurs thrive in economies with
effective Science, Engineering and
Technology Bases (SET bases).
Three findings particularly show this link:
high-potential entrepreneurship is
consistently linked to national
competitiveness measures
(competitiveness, government
efficiency, technology index, ICT);
high-potential entrepreneurship is also
strongly linked with a strong SET Base
(participation in secondary and tertiary
education, scientific publications per
capita); and
high-potential entrepreneurship is only
weakly linked to “raw” measures of
national science, engineering and
technology (R&D expenditure per GDP
and per capita) suggesting that it is not
just how much is put in but also how it
is exploited that matters.
7 Summer 2003. Labour Force Survey.
8 http://www.gemconsortium.org/default.asp
2.8. The Skills Strategy in England, and
equivalent programmes in Scotland and
Wales, aim to provide high opportunities
for training and skills development to meet
the needs of both employers and employees.
The Government is encouraging businessto-business learning by working with
Business Schools and other management
bodies such as the Chartered Management
Institute (CMI) to improve the access of
managers and students to high quality and
relevant management education. In recent
years there has been a huge increase in
student enrolment in business courses:
DfES figures show that there are 160,000
people studying Business Administration
at undergraduate level and a further 80,000
at postgraduate level in 2001/02. The latest
available information shows that 13,318
people enrolled for MBA courses in 2000
with 10,800 people graduating with MBAs
in 2002/03.
2.9. Regional Development Agency (RDAs)
led regional partnerships have done much
to highlight the skill needs of managers
and have championed innovative
approaches to management development
and training. In the South East, for example,
the RDAs has committed
£2m to activities that will develop and
enhance management and leadership
across the region. These activities include:
increased number of business mentors,
and employer learning networks and
diagnostic packages that are available to
businesses across the region.
2.10. The joint DfES and DTI Leadership
and Management Unit is pursuing a
programme of work to follow up the
recommendations of the Council for
Excellence in Management and
Leadership9. Within the context set by the
Skills Strategy the main elements are:
a) Introducing a programme to support
leadership and management
development of the Chief Executives and
senior managers of medium-sized firms
(see paragraph 2.19).
9 http://www.managementandleadershipcouncil.org/
INNOVATION REPORT
35
Box 2.2
Developing entrepreneurship among science students
The Centre for Scientific Enterprise Limited
(CSEL) is one of 13 SECs at leading UK
universities funded by the Office of Science
and Technology (OST).
CSEL places 40 University College London
(UCL) professors, lecturers and postgraduates per year in 100-hour long business
courses at London Business School,
alongside MBA students. The scheme has
delivered some concrete results:
35% of Research Scientists identified
commercial opportunities from their
research;
a number of departments in UCL,
including Computer Science and
Medicine have adopted a more proactive
approach to commercial exploitation of
research; and
UCL Research Scientists and London
Business School graduates have become
involved in a number of successful
spin-outs.
In 2002 CSEL created the E-Challenge. 140
UCL academics formed teams that included
30 London Business School MBAs:
together they explored 40 live technology
proposals and generated 12 start-up
proposals, a number of which have already
attracted funding.
Discussions are currently underway to fund
Technology Enterprise chairs at both
London Business School and UCL.
b) Supporting the work of the new forum
created by the Council for Industry and
Higher Education and the Association of
Business Schools. This brings together
employers and the Deans of major
Business Schools, so that they can
understand better what employers want
in business and management education.
36
INNOVATION REPORT
The Chevening Technology Enterprise
Scholarship (funded separately by Trade
Partners UK and operated by CSEL
nationwide) brought 57 technology
postdoctoral students to 11 UK universities,
including several SEC universities for the
purpose of working with academic
supervisors on the commercialisation of
technology research. London Business
School, Imperial College London and
Cambridge University’s Institute of
Manufacturing are collaborating on business
training designed to enable students to
assess the commercial value of technology
research, develop business plans and
potentially launch start-up companies.
Cambridge has benefited from a SEC, as
well as from substantial funding for the
Cambridge/ MIT Institute. They have
established four Masters degrees based
on successful MIT multi-disciplinary
programmes:
Chemical Engineering Practice;
BioScience Enterprise;
Engineering for Sustainable
Development; and
Technology Policy
In Scotland, the Scottish Institute for
Enterprise (SIE), funded by Science
Enterprise Challenge now brings together
all of Scotland’s universities. The SIE is
now delivering enterprise education to
over 8000 students and has supported 55
sustainable businesses.
c) Using the new Investors in People model
for Management and Leadership to help
firms assess their own performance and
benchmark themselves against others.
The launch of the Chartered Manager
programme by the CMI, combined with
the forthcoming new occupational
standards for effective management and
leadership programmes, helps companies
develop the skills of their managers.
Chapter 2
High performance innovative companies
Box 2.3
South Derbyshire College - Employer Direct
South East Derbyshire College offers 500
different study programmes, serving more
than 8,000 people each year at its main
sites and learning centres throughout the
local area.
A key part of the College Mission is to
respond to the needs of individuals and
employers through the provision of high
quality, cost-effective training and related
services.
The college has created a branded service
called ‘Employer Direct’ which works as a
dedicated business support unit by helping
businesses to find practical solutions,
not just flexible training packages.
The service is delivered through a range
of providers, including the college, which
means that they can refer businesses to
the most appropriate source of help and
advice. In 9 months they have worked with
200 new businesses and are now working
with the local Business Link to better target
employers.
d) Identifying and implementing specific
sector-related leadership and
management priorities through a
dedicated Skills for Business network10
action group.
2.11. In 1999 we launched Science
Enterprise Centres (SEC) to provide access
to entrepreneurial skills for undergraduates
and graduates in science and engineering.
The uptake has been enthusiastic, there are
now thirteen centres funded by the Office
of Science and Technology (OST) at a cost
of approximately £40m.
A full range of services is offered
including flexible and bespoke training
packages, advice and guidance on human
resources, distance learning, Modern
Apprenticeships and signposting to the
range of business support opportunities
available within the College and more
widely. South East Derbyshire College
Principal Mick Brown explained:
“The College takes its role of developing
a strong vibrant community in Erewash
and Amber Valley very seriously.
We remain committed to supporting the
learning and skills training needs of the
local community whether that be school
leavers, adults and community groups or
employers.
Our Employer Direct business unit has
been extremely successful in working in
partnership with local businesses of all
sizes to address their training requirements
and tackle skills shortages which have a
direct benefit to the bottom line.”
2.12. To build on the success of the SEC
we will work with Business Schools and
Management Institutes to develop
curriculum material and case studies that
aid the teaching of the skills underpinning
the management of high tech fast growth
businesses, as well as new product
development. We will appoint a lead
institution to identify needs, commission
high quality material, and aggregate and
distribute it to educators across the UK
SET base. We also will explore ways to
make available to UK students innovative
programmes such as the Chevening
Technology Enterprise Scholarship
mentioned above.
10 The Skills for Business network comprises employer-led
Sector Skills Councils and the Sector Skills Development
Agency.
INNOVATION REPORT
37
2.13. We also believe that an opportunity
exists to increase the knowledge transfer
activities of Further Education Colleges
(FE Colleges). The DfES are proposing to
develop the capacity in Centres of
Vocational Excellence’s (CoVEs)/FE
colleges and where appropriate DTI will
support that under its Business Support
programme11.
customers are encouraged to access
support through the Business Link brand.
Business Link will build on the success of
their current role for the Employer Training
Pilots, where it signposts companies
interested in raising the basic skills of their
workforce to the most appropriate training
providers. 300 Business Learning Accounts
(BLAs) will be piloted over the next two
years in Scotland.
Upgrading SME
management skills
2.17 We will use the brokerage and
signposting capacity of Business Link to
strengthen the links between business
support programmes and skills.
For example, where the managers of
medium sized companies have benefited
from the new DfES management and
leadership initiatives (see paragraph 2.10),
we want Business Link to signpost them
on to the most appropriate and relevant
Business Support programmes. Business
Link will also broker links between the
companies involved in knowledge and
technology transfer programmes and local
education colleges when these are best
able to provide the necessary skills and
business development support.
To complement this DfES intends to
support the capacity of further education
colleges to offer a wider range of business
support services.
2.14. In small business the vision,
leadership and management skills of the
owner/manager and the small top team are
the keys to success. SME managers,
however, face obstacles to improving their
leadership and management skills.
They are usually so central to running the
company on a day-to-day basis that they
cannot be away from it for more than short
periods of time, and they need to have
courses tailored very closely to their
specific needs rather than covering the
whole range of management and
leadership skills.
2.15. We see the Small Business Service
(SBS) as having a major role in raising the
innovation performance of SMEs in
England, working with a range of partners
including RDA’s, and public, private and
voluntary sector service providers with
access through Business Link. Last year
Business Link provided support services or
products to over 300,000 SMEs, an increase
of 40% over the previous year.
2.16. Working with Business Link and its
wider network of business intermediaries
we will strengthen the links between skills
and business support programmes. At a
regional level RDAs and the SBS will need
to ensure that the offerings of regional
providers are branded consistently and in
a clear and simple way, and that Delivery
Partners work together to ensure that
11 Knowledge transfer partnerships product will now bring
in FE colleges
38
INNOVATION REPORT
2.18. The activities of SBS, RDAs and
Business Link need to be better
coordinated to maximise SMEs’ access to
technology support. Through close
engagement with the RDAs, in particular
on regional priorities, the SBS will ensure
that services brokered by Business Link are
properly integrated into Regional Skills
Partnerships to create a better fit between
Business Link services and RDA sector and
cluster development plans, skills and
labour market support.
2.19. Following the publication of the Skills
Strategy, the SBS is supporting DfES and
its agencies in developing a flexible
Leadership and Management Programme
for leaders in small businesses of over 20
Chapter 2
High performance innovative companies
employees. Business Link will broker
delivery of the programme which will be
delivered through a partnership involving
Investors in People UK, the Sector Skills
Development Agency (SSDA), the SBS, the
Learning and Skills Council (LSC), the
Chartered Management Institute (CMI),
University for Industry (UfI) learndirect and
others. Pathfinder projects will be
completed across England by April 2004.
2.20. In 2002/03, the SBS made “promoting
innovation and knowledge transfer” one
of the key delivery themes for Business
Link. Some £23m will be spent on this
delivery theme in the current year.
2.21. To improve the rate of innovation of
small companies, the SBS will ensure
Business Link proactively targets
companies with high innovation potential,
including those identified as priority
through the Technology Strategy and RDA
cluster policies.
2.22. In order to implement strategic,
innovative approaches, SMEs require
assistance to understand complex issues
such as Intellectual Property Rights (IPR)
and ICT (this is covered in more detail in
Chapter 4). They need to know what help is
available from Government and others
nationally, regionally and locally, and have
it provided in an easily accessible format.
Business Link provides access to this type
of advice from experts in the public,
private, social enterprise, and voluntary
sector. It helps business learn from
business by providing access to local clubs
and networks, some of which specialise
in innovation and technology topics.
In Scotland advice relating to intellectual
assets and property will be channelled
primarily through the National Intellectual
Asset Centre (NIAC).
Box 2.4
Business Link case study:
water for barren lands
Business Link Wessex (BLW) has been
leading the way in providing innovation
services to small companies.
Inventor Sam Barzanji has invented a
new gravity pump. Powered solely by the
weight of water inside it, it can raise
5,000 litres of water a day, day in, year
out, to a height of 25 metres, even out of
sludgy rivers. Sam, a Kurd, was a top
irrigation engineer in Iraq until his house
was destroyed by Saddam Hussein’s
forces in l997. Fleeing to this country as
a refugee, but unable to bring his family
with him, he initially lived on benefits.
“Faced with an empty life,” he said,
“I had to try to do something useful, and
I cannot thank Business Link Wessex
enough for helping me.” First, BLW
surrounded Sam with a Virtual Company,
a team of experts including a one-time
director of Vosper Thorneycroft and an
ex-IBM marketing specialist. Pioneered by
BLW to give lone inventors credibility
with investors, The Virtual Company
consists of experts who work for no money
but for virtual shares, which become real
shares when the company takes off.
(Forty-such companies have been started
in Wessex in the past three years.) Next,
BLW helped Sam to secure a £45,000 DTI
SMART grant, guided him to an incubator
workspace, and put him in touch with UK
Trade and Investment and people who
could smooth his way to market.
Trials of Sam’s pump were recently
completed at the Southampton Institute.
At around £150, it would be significantly
cheaper than the standard aid-agency
hand-pump. And if current discussions
go well, Sam’s pump looks to have a lifesaving future in the world’s irrigationbarren regions.
INNOVATION REPORT
39
2.23. Business Link will tailor assistance to
a company’s specific needs depending on
its level of innovation capability and the
stage it has reached in the product/service
life cycle. Advisory services will include:
Intellectual Property Rights advice;
assistance with R&D grants;
assistance with Knowledge Transfer
Partnerships;
brokering collaboration between
companies and Higher Education
Institutes; and
alerting SMEs to public procurement
opportunities;
2.24 In Scotland, general assistance is
provided through the Business Gateway
with advice on specific schemes is given by
the scheme administrators, e.g. the
Scottish Executive, Scottish Enterprise,
Highlands and Islands Enterprise and the
Local Enterprise Companies (LECs).
Diagnostic advice and help to prepare for
innovative projects is provided free by the
Innovators Counselling and Advisory
Service Scotland (ICASS). Advice relating
to intellectual assets and property will be
channeled primarily through NIAC.
2.25 To help those who prefer to access
information electronically, the SBS will be
launching the new http://www.business
link.gov.uk/service by April 2004.
In short, the most successful, growing and
imaginative companies use design to
enable innovation. Better designs will be
crucial in developing goods and services
which use less energy or materials, or are
more easily reused and recycled.
2.27. Unfortunately not enough businesses
use design to connect new ideas with
market opportunities and a lack of design
ingenuity usually indicates static or poor
overall business performance. Design
contributed to the competitiveness of 64%
of rapidly growing businesses, but only 9%
of static ones. Design is considered integral
or significant to 90% of rapidly growing
companies, compared to just 26% of static
businesses14. Similarly, 79% of those that
had grown rapidly in the previous year saw
a great or fair contribution to productivity
through design, innovation and creativity.
This falls to 4% for those that have stayed
the same size.
2.28. The UK has a world leading design
industry. The design consultancy sector
alone had a turnover in 2001/2002 of
£5.9 billion15 and employed 67,000 people –
and overseas fee income increased by
40% in 2002. In some niche activities, such
as product design, up to 80% of turnover
comes from overseas earnings16.
Britain also has a world-class design
education system.
Design and innovation
2.26. Research shows that design skills are
vital to business innovation and can
significantly enhance a company’s financial
performance. A recent study revealed that
the share price of companies that used
design well outperformed the FTSE 100 by
65% over the last seven years to 200212.
Research shows that 42% of UK businesses
engage in design activity of some sort.
But, significantly, this rises to 74% for
rapidly growing companies13.
12 Design Index research, Design Council/BVA, 2003.
13 National Survey of Firms, Public and Corporate
Economic Consultants, 2003.
40
INNOVATION REPORT
14 ibid.
15 Design Industry Valuation Survey, British Design Initiative
and Design Council, 2002.
16 ibid
Chapter 2
High performance innovative companies
Box 2.5
Denby Pottery Company Ltd
Denby Pottery combined effective use of
design with significant investment in
plant and equipment to improve its
performance at home and abroad.
Commercial success in the mid-90s with
two classic ranges – Imperial Blue and
Regency Green – enabled the company to
float on the Stock Exchange, raising capital
for investment. The business invested
over £5m in a materials preparation plant
and a kiln, which increased production
capacity. At the same time, it also
invested strongly in Design, taking a
‘lifestyle’ approach to its markets,
broadening the ceramic product range
and including glassware and tabletop
accessories. In this way they stand out
from their competition and attract their
customers. A business driver now!
Turnover, fuelled largely by the success
of the new products, grew from £21.9m
in 1993/4 to £38.7m in 2002. From its
manufacturing base in Derbyshire, Denby
now exports to 30 countries. Significantly,
a large proportion of this increased
turnover is from these new products.
2.30. The challenge is to exploit fully the
design excellence that exists on our
doorstep, through policies, which bring
about changes in the behaviours of UK
management in both the private and public
sectors. At the national level, the Design
Council19 is the catalyst for the delivery of
those policy mechanisms. It provides
examples and tools, which enable
companies and organisations to embed
design in business activities, and to
stimulate changes in behaviour so that a
higher value is placed upon design and
creativity in the workplace.
2.31. The Design Council has evolved a
new type of practical activity with small
groups of manufacturing and early stage
emerging technology companies.
Even in this early pilot stage, the scheme
has influenced management decisions.
The participating companies have
increased projected turnover, significantly
raised design spend and recruited
designers/creative directors, and they have
moved from being product or technology
driven to being customer centric.
2.29. Design can facilitate technology
transfer, yet is rarely – and never
systematically – used as a transfer tool by
universities17. In addition, there is a poor
understanding of the business relevance of
design by engineering, science and MBA
graduates – tomorrow’s managers18.
17 Research for the Design Council by Scientific Generics
Ltd on University Technology Transfer and Enterprise
Teaching, 2003.
18 Research on design activity in higher education by
Nuventis and the Design Council, 2002-2003.
19 http://www.design-council.org.uk/
INNOVATION REPORT
41
Box 2.6
Aqualisa
To differentiate products from
increasingly strong European
competition, Kent shower manufacturer
Aqualisa involved designers Seymour
Powell from an early stage in developing
a product that balanced user needs,
commercial pressures and technology.
The resulting Quartz range exceeded
sales targets by 160% after launch in 2001
and the project achieved payback within
a year. The company grew by 15% in 2002.
Quartz showers contain electronics to
control temperature and power, making it
possible to locate controls anywhere –
including on the wall outside the shower
– and to programme the shower before
getting in. And because water is mixed in
a unit outside rather than inside the
bathroom wall, installation time is
reduced from two days for a conventional
shower to just a few hours. This
responded directly to user research
showing that customers disliked the
experience of having a shower installed
and were unsure whether they were
being charged correctly for plumbing.
Investigating customer needs with the
designers also led Aqualisa to include
other features including a light showing
when optimum temperature is reached
and push-button controls which don’t
require strength and dexterity to use.
‘If you think design’s expensive, look how
much bad design costs.’ Martyn Denny,
Aqualisa.
2.32. After consultation with the DTI and
industry, the Design Council will work with
a range of partners to deliver three
campaigns to enhance innovation through
the improved use of design in
manufacturing, emerging technology and
services businesses, involving up to 10
industry sectors over the next two years.
Sector Skills Councils will also be invited
to provide guidance on how investment in
skills can increase the returns from
applying a higher value approach to design.
2.33. Phase 1 of each campaign will be
Design Demonstration activities. These
bring design professionals into companies
identified with help from the relevant
industry organisation. The professionals
provide a high quality design diagnosis,
working with senior management and
designers to look strategically across the
companies’ to identify opportunities where
design can add value and connect innovation
to market opportunities. The Demonstration
will be chosen to develop and highlight the
potential for “cutting edge” best practice.
Continued support is to be provided
through a mentoring activity.
2.34. Phase 2 will take the outcomes of the
demonstration phase and transfer the
understanding to a further 500 companies
and communicate the key learning to up to
5000 companies. By mounting these
campaigns with other intermediaries such
as the Engineering Employers Federation
(EEF), RDAs, DAs, Sector Skills Councils,
Business Link, Manufacturing Advisory
Service (MAS) and others will ensure the
best possible business outreach.
2.35 The goal for each campaign will be to
deliver self-sustaining change towards the
more effective and strategic use of design
by companies over the next three years.
2.36. A further pilot Design Council
demonstration project with University
College London Ventures demonstrated
the added benefits that design can bring
to enabling technology transfer from
42
INNOVATION REPORT
Chapter 2
High performance innovative companies
Universities into industry, whether through
licensing or spin-outs. This initiative will
now be further developed in other TTOs.
2.37. The Design Council, in consultation
with Sector Skills Councils, will work in
partnership with UK universities and FE
colleges to establish design learning for
science, engineering and business
management students. This will enable a
better understanding of the role of design
in translating science and technology into
products and services. Design learning
activities will be specific to each course
and could include: enterprise teaching
inputs, entrepreneurship challenge
support, collaborative projects with design
departments, multidisciplinary projects,
design mentors, placements and PhD
training. This will start with a pilot
demonstration project with two
universities, growing to involve ten within
three years. (see box 2.7).
2.38. The Design Council also will work
with the DTI and others to further develop
design demonstration activity within
TTOs in other leading academic research
centres. Initially this will be through a
pilot with four TTOs undertaking 5 projects
in each and subsequently rolled out to
other research based universities when
proven effective.
Box 2.7
Industrial design and engineering
The MA in Industrial Design and
Engineering (IDE) run jointly by the Royal
College of Art (RCA) and Imperial College
provides engineering graduates with
training in industrial design professional
practice. The course highlights the links
between industrial design and engineering
in creating effectively designed products.
It focuses on radical approaches to user
centred briefs, state of the art materials
and production processes within
responsible environmental parameters, and
produces many patentable products ready
for production.
Industrial placements with design and
manufacturing organisations all over the
world are a key part of the course (which
leads to a diploma from Imperial College
as well as an MA from the RCA). More than
85% of graduates have gone on to work as
industrial designers with companies
including Dyson, Phillips, Audi and
Glaxosmithkline.
Glasgow School of Art and University of
Glasgow’s jointly run Product Design
Engineering course combines
engineering theory with laboratory and
design studio practice. The course aims
to helps students apply academic skills in
an innovative ways to design
manufacturable products.
The course pioneered this form of
undergraduate education in 1987, and is
accredited by the Institution of
Mechanical Engineers to offer BEng and
MEng degrees. It gives undergraduate
students an appreciation of the technical,
creative, management and human
centred issues at the heart of designing
for production. The course has successfully
produced design engineers with strong
creative and integrated skills and its well
established links with industry provide
another highly practical dimension.
Uniquely in mechanical engineering
education, the courses attract a
substantial proportion of women.
Graduates have gone on to set up their
own businesses or to employment with
companies including Apple computer,
BAE SYSTEMS, Dyson, JCB, Marconi,
Nokia, and Psion.
INNOVATION REPORT
43
Upgrading skills across
the work force
2.39. At first degree level the UK provides a
high level of scientists and engineers. In
fact, the UK has in recent years produced
more new science and engineering
graduates as a percentage of 25-35 year
olds than any other G7 country apart from
France. But in the UK, as in other countries,
the pattern of subject study has shifted;
significantly fewer students are taking
physics and chemistry courses, while more
are taking biology and IT. The Government
is working with the Engineering and
Technology Board and the Science Council
to redress this imbalance.
2.40. As set out in the Skills Strategy20, the
UK has a significant skills gap at the
intermediate skills level. At the technician,
associate professional and skilled crafts
levels we have a serious shortage of such
skills compared to our main European
competitors. In the UK 27.7% of the
workforce have intermediate level skills
compared with 51.2% in France and 65%
in Germany. This skills shortage clearly has
a serious impact on our productivity and
innovation performance (see Chapter 1).
44
2.42. The Hepworth report21 also revealed
striking regional disparities: for instance,
in Greater London, 30% of the workforce
has a degree or higher qualification
compared with less than 18 per cent in
the North East. Furthermore in Greater
London, 43% of those in work are
employed in knowledge intensive private
sectors compared with only 6% in the
North East.
2.43. The Skills Strategy22 in England
marked a significant shift to a demand-led
approach that put business needs at the
centre of our skills policy. Throughout the
Skills Strategy there is a strong emphasis
on the relationship between skills,
innovation and enterprise. Innovation
drives demand for higher-level skills and
skills are essential for businesses to move
up the value chain and develop products
and services that make effective use of new
and emerging technologies.
2.44. The Secretaries of State for DTI
and DfES, are jointly leading the Skills
Alliance which brings together key
Government Departments, social and
economic partners, and delivery agencies,
to implement the Skills Strategy.
2.41. Compared with our international
competitors, the UK also has specific
weaknesses in: management and
leadership skills; professional Information,
Communication and Technology (ICT)
skills; mathematics, engineering and
physical sciences (STEM skills as identified
by Gareth Roberts); generic skills (such as
communication, team working and
problem solving); and basic literacy,
numeracy and ICT skills.
This will involve:
20 21st Century Skills: Realising our Potential.
National Skills Strategy, published July 2003.
http://www.dfes.gov.uk/skillsstrategy/
21 Mark Hepworth, A Regional Perspective on the
Knowledge Economy in Great Britain, February 2003
22 ibid
INNOVATION REPORT
Co-sponsoring the Sector Skills
Development Agency and the Skills for
Business network to ensure that
employers are able to influence public
sector funding of training programmes,
increase their own investment in skills,
and get the skilled people they need.
We are on course to meet the target of a
fully operational network of 23 Sector
Skill Councils by Summer 2004. Four are
already in place, and 19 in various stages
of development. The network will cover
approximately 90% of the workforce.
Chapter 2
High performance innovative companies
Once in place, the Skills for Business
network will make a major contribution
to increasing innovation and providing
employer leadership on skills issues
by promoting:
a clear evidence-based business case,
on how skills contribute to improved
innovation and sector productivity;
improvements in key areas such as
leadership and management;
action by employers, through Sector
Skills Agreements, to address these
skills issues;
world-class occupational standards
that promote innovation.
Using the business contacts and sector
understanding of the DTI’s sector-based
teams, and specifically the DTI
Innovation and Growth Teams, to work
in a close partnership with the Sector
Skill Councils, sharing information and
analysis, drawing on their respective
networks, and developing shared
agendas. This will involve close
collaboration on the development of
Sector Skills Agreements. The skills
needs and priorities identified through
this work will then be reflected in LSC’s
planning and funding of the supply of
training, working through the Regional
Skills Partnerships.
Making sure companies who are
receiving business support also have
access to support to develop the skills
required to implement their strategies
successfully. Evaluation of past DTI
programmes shows that innovative
projects have a significant impact on the
demand for skills: 97% of participants
mentioned that they had increased their
skills levels as a result of undertaking the
project. All future DTI Business Support
programmes and our regional
investment support programmes will
therefore go further to address the skills
needs associated with those
programmes. In each case we will
consider, in designing and implementing
the programme, the skills that will be
needed to ensure the investment brings
the maximum benefits for the company.
Where relevant, we will help the
company identify and secure the new
and enhanced skills it will need as a
result of the investment. In monitoring
the impact of relevant programmes, we
will assess the skills impact as one of the
key elements of progress.
Using our sponsorship of RDAs to
ensure effective implementation of the
new Regional Skills Partnerships.
These will provide a strong alignment
between regional strategy, business
need and service provision. Business
Link and the new business support
programmes will be fully integrated into
the work of these partnerships. Working
with DTI and DfES, the RDAs will need to
assess their capacity to fulfil the
expanded role identified for them in the
Skills Strategy and take the necessary
action to improve their capabilities.
Working with DfES to reform and expand
education and training for 14-19 year
olds and Modern Apprenticeships, and
introduce Foundation Degrees, so that
they develop young people able to do
work to the high standards that
employers require. As a result, they will
be in a position to command a premium
in the labour market. This will involve
increasing employer involvement in the
design and delivery of Modern
Apprenticeship and Foundation Degree
programmes.
Using the Technology Strategy to
identify new demands for skills in high
technology areas such as nanotechnology,
life sciences, aerospace, and ICT.
Working with DfES and DWP, we are
producing shared priority targets
towards the common goal of raising
employment, productivity and
competitiveness.
INNOVATION REPORT
45
High performance workplaces
2.45. Evidence shows there is a clear link
between innovation and high performing
workplaces, where good managers inspire
their employees and create a workplace
culture in which new ideas are encouraged
and rewarded. In turn, employees who are
motivated and valued can play a vital role
in contributing to the success of the
business. The 1998 Workplace Employee
Relations Survey identified fifteen key
workplace practices. Those businesses that
displayed four or more of these practices
were more productive than those that did
not. These included fully or semiautonomous team working, single status
for managers and other employees, team
briefings with feedback, non-managerial
approach to problem solving, and family
friendly policies. The results show, however,
that only 14% of workplaces had a majority
(eight or more) of these practices in place,
and 29% had adopted three or less.
This is not sufficient if we are going to
achieve a competitive advantage through
workplace innovation.
2.46 Research23 has also illustrated the
relationship between skills deficiencies and
organisational weaknesses and concluded
that strategies to tackle the former cannot
be undertaken in isolation from the latter.
The TUC-CBI productivity report24
presented research that found that UK
companies were more likely to implement
technology and technique related practices
than people related practices.
2.47 Team working, involvement in
decision-making and extensive
communications are all particularly
important characteristics of high
performance workplaces. Organisations
can get a bigger performance boost from
23 What can the UK Learn from the Norweigan and Finnish
experience off attempts at Work Reorganisation, Warwick
Keep & Payne (2002).
24 Productivity Report, CBI & TUC (2002)
46
INNOVATION REPORT
working with their employees than from
a ‘command and control’ approach to
management. A 1990s study carried out
by the Employee Participation and
Organisational Change programme
(EPOC)25 into the impact of employee
participation reforms in eight countries
found that 94% of workplaces that had
delegated tasks to groups of workers saw
an improvement in quality and 58% saw
an improvement in output. These research
findings illustrate the impact of work
organisation and workplace culture on
innovation. Furthermore, high-trust
relationships that allow workers to have a
say in the way work is organised are vital
to the successful implementation of new
technologies and processes. For innovation
to flourish, work must be organised in a
way that enables new skills and employees’
knowledge to be fully utilised and to create
a culture of continuous innovation.
2.48. We will continue to encourage the
growth of high performing organisations
by educating business, both employers and
employees, about the role of innovation.
We also have to ensure that policies are in
place to support such development
through the business support network and
our work on inspirational leadership.
We will publish a range of league tables
and best practice which help business to
business learning for example; The Times’s
“100 Best Companies to Work For”, the
DTI/interforum e-commerce awards, and
the DTI’s Value Added Scoreboard both
enable companies to benchmark
themselves against others and identify
possible areas for improvement.
2.49. We will continue to promote good
employment practices by supporting
partnership at work and championing
flexible working practices. We will offer an
initial diagnostic to highlight areas where
improvements might be most effective,
and signpost companies to appropriate
25 Sisson (K) et al (1997) New Forms of Work Organisation:
Can Europe realise its potential? European Foundation
for the Improvement of Living and Working Conditions.
Chapter 2
High performance innovative companies
support. In some cases the most
appropriate support will be advice from a
business adviser. In other cases, a short
project to implement a best practice
process will be appropriate, and we will
provide support to help companies access
accredited experts to implement change
within the organisation. We will also assist
companies to measure the benefits of
implementing best practice, and demonstrate
long-term improvements in performance.
2.50. We will;
work with the TUC to explore ways in
which trade unions can respond to the
challenge of helping companies to
innovate; and
build on the work already undertaken
by the TUC and CBI on productivity to
establish an Innovation Taskforce, with
joint union-business leadership to
undertake additional work to identify
how the innovation agenda can be
spread through Britain’s workplaces.
Box 2.8
Pork Farms Ltd
Pork Farms recognised the need to
improve productivity, improve its culture
and skills base by upskilling the employees,
jointly working together towards world
class manufacturing standards.
Although Pork Farms is the major brand,
and a major supplier to the big four
supermarkets of both brand and own label
product, the market is very difficult with
limited opportunities for growth, and with
the commercial environment becoming
evermore competitive, the continued
survival of the factory was of concern.
After a one-day event for all employees
the business had a much clearer idea of
the issues from an employee perspective:
communication, dignity and respect,
consultation and general training all highly
amongst the items on the employees’
agenda.
Half day Dignity and Respect workshops
were held jointly for managers,
supervisors, Transport and General
Workers Union (TGWU) Union Learning
Representatives, and Employee Support
Workers and smaller workshops were held
for the whole workforce to endorse
company policy and offer support for
anyone with issues of this nature.
Funding to support a large NVQ
programme was sought and the LSC is
currently supporting a Technical Services
NVQ level II. This has attracted 150
candidates of whom 30% have completed
their courses within 3 months of starting,
showing both the employees’ desire for
training and qualifications, as well as the
ability to deliver results, given support
and opportunity.
Throughout the process a weekly
partnership meeting has been held, made
up of a management group and the
4 senior TU representatives. A working
relationship has been forged, and a much
more open and straightforward dialogue
has emerged.
Benefits so far include:
an increased level of training
throughout the factory;
an open and straightforward dialogue
between employees, the Trade Union
(TU) and the business;
increased levels of productivity in the
factory through joint problem solving;
decreased absentee levels; and
increased employee involvement in
decision-making.
INNOVATION REPORT
47
2.51. We will proactively push the benefits
of the new framework agreement on the
Information and Consultation Directive to
maximise the roll-out of improved
workplace consultation ahead of the
required implementation date of March
2005. The Directive includes the right for
employees to be informed and consulted
about decisions likely to lead to substantial
changes in work organisation. This might
involve discussions around training and
development, investment in skills, cultural
changes, or human capital management –
all beneficial to the development of high
performance workplaces and a higher
skilled, more participative workforce.
2.52. We will continue to promote ACAS as
an agent of positive change in the
workplace and a centre of excellence on
workplace practice. We will also continue
to support the increase in Union Learning
Representatives, given statutory backing by
this Government, as part of the process of
ensuring lifelong learning is recognised
throughout the economy.
Figure 2.1
The Global Entrepreneurship
Monitors (2002) prevalence
rate of entrepreneurial activity
Innovation in a diverse
and inclusive work force
2.53. An increasingly diverse population is
driving demand for an equally diverse
range of products and services, for
example specific products to help people
with impairment as a result of old age or
disability. A diverse work force is better
able to anticipate the demands of a diverse
market place and therefore create the
innovative product to meet these needs.
For example, increasing the numbers of
disabled people in design and engineering
occupations would encourage the design
and manufacture of product that really
work for this sector of the population.
Over half the growth in the working age
population in the next decade is expected
to come from ethnic minorities; we need to
ensure that we harness the innovative
potential of this pool of talent.
2.54. It is clear that if we are to raise both
productivity levels and rates of
entrepreneurial activity within our economy
then additional steps to promote female
entrepreneurship need to be taken. As the
Global Entrepreneurship Monitor 2001, UK
Executive Report states “one of the clearest
ways for the UK to increase its levels of
entrepreneurship would be by encouraging
and supporting more women into business”.
25
20
15
10
0
New Zealand
Mexico
Korea
United States
Iceland
Canada
Australia
Ireland
Switzerland
Norway
Hungary
Denmark
Italy
Netherlands
Finland
Germany
United Kingdom
Poland
Spain
Sweden
France
Belgium
Japan
India
Argentina
Brazil
China
Chile
South Africa
Israel
Slovenia
Russia
Thailand
Chinese Taipei
Singapore
Hong Kong
Croatia
ALL Countries
5
Women
Men
Note: Countries with an asterisk are OECD member countries.
Source: OECD – Women Entrepreneurship, Issues & Policies 2003.
48
INNOVATION REPORT
Chapter 2
High performance innovative companies
Box 2.9
Women starting high-potential
businesses around the world
There are difficulties in obtaining
consistent data across different countries
on the actual economic impact of women
entrepreneurship in most OECD countries
– there is sufficient research to illustrate
the challenge the UK faces.
in the UK women comprise 26% of selfemployed and own account workers
compared to 34% in Austria, 28.7%
in Belgium, 33.4% in Canada, 32.3% in
Finland, and 39.8% in Portugal26;
in the United States, just over 40% of
business start-ups are women-owned;
in the UK this figure is much lower
at 28%27;
men are at least twice as likely to
be an entrepreneur in the UK than
women28; and
the peak age group at which people
start businesses is 35-44 for both men
and women – however the difference
between male and female
entrepreneurial activity is also at its
highest in this age category.
26 OECD- Women Entrepeneurship, Issues & Policies 2003.
27 National Association of the Self-Employed Survey, 2003;
Barclays “Women in Business”.
28 Global Entrepreneurship Monitor 2002, UK Executive
Report.
2.55. We will ensure that business support
is better targeted to help women who
want to start, or grow, a business. To
achieve this we will seek to increase the
number of women using governmentsponsored business support to 40% of all
customers by 2006. In addition, we have
required each RDA to develop an action
plan for women’s entrepreneurship in
partnership with Business Link, existing
women’s enterprise initiatives and other
key groups. The action plans will deliver a
range of services including improved
business advice and mentoring, networking
opportunities, and access to finance for the
full range of women-owned businesses,
including social enterprises and community
interest companies.
2.56. We will also work with the existing
network of women’s enterprise agencies,
such as Women Into the Network (WIN) in
the North-East, Train2000 in Merseyside
and the Women’s Business Development
Agency (WBDA) in the West Midlands,
to ensure that every region has a network
of targeted women’s initiatives as part of
the regional plan. These provide specific
advice, training, networking, mentoring
and, in some cases, incubation facilities for
women entrepreneurs. To achieve this,
we will target the new round of the
European EQUAL programme funding,
starting in 2004, to develop this network.
2.57. In order to improve access to finance
for women entrepreneurs, the Government
will ask the BBA (British Bankers’
Association), BVCA (British Venture Capital
Association), NBAN (National Business
Angel Network) to work together to
identify what measures should be taken to
improve access to mainstream finance.
This should build on the experience of
current loans programmes targeted at
women, such as the Bolton Business
Ventures fund, the Full Circle Fund, and
international initiatives such as Women’s
World Banking and the Finnish Women
Entrepreneurs Loan.
INNOVATION REPORT
49
2.58. Current evidence suggests that
women may be particularly interested in
working through co-operative models.
Consequently, the Government has asked
the Co-operative Movement to undertake
a piece of work to determine what
additional measures might be developed
to facilitate the establishment of womens’
cooperatives within the UK.
2.59. As part of a capacity-building
programme, we will work in partnership
with Prowess to develop a comprehensive
Toolkit – ‘Effective Business Support for
Women’ – to complement current adviser
training and ensure that the business
support community is able to support the
needs of women entrepreneurs more
effectively.
2.60. We will improve the quality, quantity
and availability of data relating to
womens’ enterprise across Government
to establish solid baselines for monitoring
progress towards the targets contained in
the Strategic Framework for Womens’
Enterprise29. The Devolved Administrations
are also developing a range of new
Initiatives in this area. For Example, in
Scotland, support for women in business
remains a priority and a new support
strategy will be introduced in 2004,
building on the range of programmes
currently in place within the ambit of the
National Womens’ Unit.
29 http://www.sbs.gov.uk/content/consultations/
womensframework.pdf.
50
INNOVATION REPORT
Chapter 3
Technology
innovation
INNOVATION REPORT
51
Summary
Developed countries around the world
have recognised that success in the future
will come from businesses increasing the
added-value from their products, processes
and services. Government action to
encourage businesses to develop and
implement new products and services has
become a high priority. Given this, the UK
Government needs to harness its resources
more effectively in promoting technological
innovation. This chapter explains what
action has already been taken and how we
will build on that towards realising our
vision of the UK being a key knowledge
hub in the global economy.
The UK has a strong Science, Engineering
and Technology (SET) base. But analysis
shows that the UK record of knowledge
transfer and exploitation by business
(measured, for example, by Business
Enterprise Research and Development
(BERD)) has generally been weak, though
with some notable exceptions such as
pharmaceuticals, telecommunications and
aerospace.
In recent years the Research Councils have
increased significantly the rate of
knowledge transfer from their research
activities. For example, the Medical
Research Council (MRC) has a successful
venture capital fund and the Engineering
and Physical Sciences Research Council
(EPSRC) undertakes 40% of its projects
in collaboration with business.
This represents about 25-30% (£140m) of its
budget. But we believe that there are more
opportunities for much greater collaboration
between the Research Councils and
business in strategic areas of research.
The Director General of Research
Councils will agree with each of the
Research Councils plans and goals for
increasing the rate of knowledge
transfer and the level of interaction with
business through activities such as
collaborative research, start-up
companies and the Small Business
Research Initiative (SBRI). Where these
are not already in place, Research
52
INNOVATION REPORT
Councils will establish measures of
collaboration, so that progress can be
monitored. Furthermore, the level of
interaction with business by each
Research Council will be subject to peer
review within Research Councils UK and
to external challenge by a group
including business representatives.
Initiatives in recent years, to increase the
diffusion of research findings from
universities into the economy, have been
very successful, and are being extended in
England as part of the second round of the
Higher Education Innovation Fund into
many more of the less research intensive
universities. We believe that an important
alternative mission in applied research,
training and knowledge transfer exists in
such universities.
The Lambert Review of UK businessuniversity collaboration has also identified
continuing barriers to business-university
collaboration, and has made
recommendations directed towards
removing these barriers which complement
the actions identified in the Innovation
Report.
However, we need to improve both the
supply side and the demand side of our
research performance. We need to put in
place a more strategic approach,
embracing businesses; the research and
knowledge transfer communities and
government more widely. As a first step,
we have re-engineered the DTI technology
support products, and drastically reduced
their number.
In conjunction with business, the SET
base, Government more widely
including Regional Development
Agencies (RDAs), the Devolved
Administrations (DAs) and other
stakeholders, we will now develop a
Technology Strategy, with a medium
to long term perspective, which will
provide a framework for setting policy
priorities and increasing the
effectiveness of business support.
Chapter 3
Technology innovation
The Strategy will also be available to
help guide Government-wide R&D,
European programmes and RDA support
for science and technology, and to
inform the future development of
technical regulations, measurement and
product standards, and identify
opportunities for innovative public
procurement. The Strategy will also help
inform the development of technology
support mechanisms in Scotland.
We will work closely with business to
‘pull through’ and exploit technologies
from the UK and the international
research base by providing some of the
funding, and sharing some of the risk, in
taking new technologies to the market.
We will do this through funding an
industry led-technology programme.
We will measure our performance by the
wealth creation and broader public
benefits generated; we will consider not
only the quality of research, but also
the extent to which a greater number
and variety of companies are involved.
We will also support knowledge transfer
networks, building on established,
successful networks including sectorbased ones.
technology programme will depend on
close alignment with priority market
applications such as transport (including
aerospace and automotive), health care,
construction (including sustainable
buildings), digital content, retail/logistics
and financial services. DTI sector units
will play a key role in this, working with
business to maximise the benefit of the
technology strategy to individual
sectors, as an integral part of their
broader business relations role.
In the near term, funding for the
technology priorities will be drawn from
the rationalisation of the mass of current
DTI schemes that are gradually being
closed down and from major
programmes already announced but
where the funds have yet to be
specifically allocated (e.g. nanotechnology
and energy renewables). We will start
this new approach by launching
between now and Spring 2005,
application programmes, totalling
£150m over their lifetime.
A Technology Strategy Board will be set
up to ensure the technology priorities
are market-focussed and to advise on
the broad allocation of resources to
them. The Board will act as a high level
forum for interaction between business,
Government and other stakeholders.
The Technology Strategy will be based
firmly on market pull, and will therefore
reflect the requirements of current and
potentially key UK world-class
innovative sectors, including those that
already invest heavily in industry R&D or
demonstrate the capacity to exploit
leading edge technology. As technology
– particularly Information and
Communications Technology – is
increasingly being used in service
applications, the Technology Strategy
will also cover the needs of service
industries. The success of the
INNOVATION REPORT
53
The need to improve the
take-up of new technologies
3.1. The end of the 20th century witnessed
a wave of scientific discovery and
technology innovation in a range of areas
that have only just begun to change the
way we work and interact with our
physical, natural and social environments.
For example, the development of the
internet and mobile communications have
transformed people’s access to
information. Mapping the genome of
humans and disease-causing agents, such
as the malaria parasites, using massive
computing power, has opened the way to
wider, rapid screening and targeted, more
cost effective treatment. Miniaturisation
and our growing ability to operate at the
nano scale has opened up the prospect of
even greater performance and functionality
across a wide range of products and
services, including electronics and
healthcare.
3.2. The pace of change is often quicker
than anticipated and the impacts are
fundamental. The growth of completely
new industries such as biotechnology,
software and the digital content industry
in the UK, as well as the decline of more
traditional sectors, bear very real testimony
to this. For example during the 10 year
period 1992-2002 the number of
biotechnology businessess in the UK has
increased from some 165 to 425, and
turnover has increased by over six fold
(from £0.5 billion to £3.2 billion).
3.3. The UK has a strong indigenous
knowledge source available to business
through the Science, Engineering and
Technology (SET) base and we do have a
strong presence in some science-based
technologies such as pharmaceuticals,
telecommunications and aerospace.
However, our strength in science is not
matched by our overall technology
innovation performance as seen in
measures such as Business Enterprise
Research and Development (BERD) or
patenting (see Chapter 1).
54
INNOVATION REPORT
3.4. Technology provides a means of
developing new products, processes and
services, or new ways of doing things.
We need to address weaknesses in
the innovation system that hold back the
development and exploitation of new
technologies. This applies to both
manufacturing and service sectors. In this
chapter, we discuss how Government can
work with businesses, the SET base,
intermediaries, Regional Development
Agencies (RDAs) and other stakeholders
to drive technology innovation forwards.
The aim is to increase business
engagement in the development of value
adding new products and services by
facilitating more collaboration.
Investment in the Science,
Engineering and
Technology (SET) base
3.5. Today the UK SET base is doing more
research more productively than ever.
The market for science and research has
become increasingly global in recent years
and UK universities have to compete
internationally for talent and research
contracts if their departments are to
maintain or improve their world ranking.
The Government has a responsibility to
ensure that the SET base (universities
together with Research Council Institutes)
is maintained and developed so that it
continues to deliver new basic research
and skills to underpin the rest of the
innovation system.
3.6. In the last two Spending Reviews the
Government has recognised this problem
and has provided for significant increases
in the overall resources for the SET base.
Action has been taken to strengthen the
research infrastructure. As a first step, the
Government, in partnership with the
Wellcome Trust, launched the Joint
Infrastructure Fund (JIF) which injected
£750m into universities for capital projects.
To put infrastructure renewal and
development on a sustainable footing, the
Chapter 3
Technology innovation
Government created a dedicated capital
funding stream for science research
infrastructure – the Science Research
Investment Fund (SRIF) – to provide £675m
over 2002-04 and £1 billion for 2004-06.
The Government has also increased the
funding for the Research Councils. In real
terms, total funding for the SET base is
expected to increase by over 50% between
1997/98 and 2004/05. We recognise the
need to maintain the balance between this
SET base funding and that for exploitation
and applied research.
Promoting knowledge transfer
3.7. The SET base makes a major
contribution to knowledge transfer through
the publication of research results and the
supply of highly skilled people capable of
transferring and adapting codified and tacit
knowledge. However, there is an additional
role that Government can play in providing
the opportunities and incentives for
translating quality UK science into
commercially successful applications.
3.8. Transfer of knowledge and know-how
from Higher Education Institutions (HEIs)
has been promoted through a number
of programmes in recent years.
Over the period 2001 to 2004 £110m of
public funding (see Box 3.1) is being
invested in knowledge transfer under
three main programmes:
Higher Education Innovation Fund (HEIF)
and equivalents in Scotland and Wales;
University Challenge; and
Science Enterprise Challenge.
3.9 In Scotland, The Proof of Concept Fund
is investing £33m over six years to fund the
pre-seed development gap between the
scientific discovery stage and the prototype
or proof of concept stage. Over the last
four years, the fund has committed £19m
to 83 projects.
Box 3.1
Example of collaboration
supported through HEI-industry
knowledge transfer programmes
Bodymetrics is a London-based company
that is focussed on providing Body-Sizing
and Visualisation solutions to clothing
retailers. The company attracted its first
large scale customer, Selfridges in Oxford
Street, in May 2003. The company’s
products help to reduce ‘returns’ for
retailers, and enable novel direct
marketing services. The company is a
spin-off from the Department of Computer
Science, University College London
(UCL), and the seed round financing was
from the University Challenge Fund
3.10 The SET base is responding well to
the demands for greater engagement with
business. The latest data, taken from the
Higher Education Business Interaction
survey (HEBI) for the academic year
2000/011 shows that:
the number of Intellectual Property (IP)
licences granted to UK-based companies,
on the basis of HEI-owned IP, increased
by 38% from 382 in 1999/2000 to 527 in
2000/2001. Income from IP licenses more
than doubled between 1994/95 and
2000/012;
the number of spin-off firms established
with some HEI ownership increased by
22% from 203 in 1999/2000 to 248 in
2000/2001; and
total new (initial) patents filed rose by
26% from 725 in 1999/2000 to 913 in
2000/2001.
1 Higher Education Business Interaction Survey for the
academic year 2000/01,
(http://www.hefce.ac.uk/pubs/hefce/2003/03_11.htm).
2 The source for this statistic is the Higher Education
Statistical Analysis (HESA).
INNOVATION REPORT
55
3.11. To simplify arrangements for
universities, HEIF is to be consolidated into
a permanent third stream of knowledge
transfer funding to universities, alongside
that for teaching and research. More
money will be put into the second round of
HEIF (HEIF 2), which will be worth £81m
in 2004/5 and £90m in 2005/6. The aim is to
simplify the funding landscape and ensure
that HEIs in England have greater
discretion and the flexibility to develop
their capacity in a way that best suits their
needs and the needs of business.
3.12. The new expanded HEIF will have two
separate allocations:
to build on the successes in knowledge
transfer already being achieved by some
HEIs; and
a separate allocation to further broaden
the reach of knowledge transfer activity
through support for less research
intensive university departments.
3.13. RDAs will play a particularly
important role in helping to direct
resources from HEIF2 so that they
contribute most effectively to regional
economic strategies: especially the funds
going to less research-intensive
universities. There are equivalent
arrangements in Scotland and Wales.
3.14. Similarly, the Research Councils have
focussed considerable extra energy and
resources on working with industry over
the past 4-5 years. Research Councils UK
has this year also set up a Research
Council-wide knowledge transfer group to
coordinate and streamline many of their
individual activities. Activities can be
classified under the following headings:
Knowledge Generation in Collaboration
with Industry, for example, university
participation in past LINK programmes.
The Engineering and Physical Sciences
Research Council (EPSRC) funds 40%
of its research projects in collaboration
with industry, amounting to 25-30%
of its research spend;
56
INNOVATION REPORT
Continuous Professional Development
(CPD);
Knowledge Transfer through
networking, for example, participation in
Faraday Partnerships;
Development of Entrepreneurial Skills,
for example, the Biotechnology and
Biological Sciences Research Council
(BBSRC) has developed the
Biotechnology Young Entrepreneur’s
Scheme, which it has been running for
over six years; and
Promotion of Start-up Companies, for
example by the Medical Research
Council (MRC) (see Box 3.2).
Box 3.2
Technology Transfer and the
Medical Research Council (MRC)
MRC Technology transfer has been boosted
in recent years. Through its technology
transfer arm, MRC Technology, MRC has
seen royalty income rise from £1.4m
in 1997/9 to £15.1m this year. In 2002/03,
41 new patent applications were filed, 32
new licensing agreements completed and
2 new spin-out companies, Iclectus Ltd
and Etiologics Ltd, were established.
MRC’s venture capital subsidiary, MVM
has raised over £150m, attracted
investment from multi-national concerns
and set up 14 companies.
3.15. We have already seen that
Government has done much to encourage
knowledge transfer from the SET base –
with measurable evidence of progress.
We want to see industry pull through more
from the science base and we, therefore,
want to encourage the science base to
work more closely with industry. We will
ask the Research Councils to explore ways
of increasing industry collaboration further.
Chapter 3
Technology innovation
3.16. The Director General of the Research
Councils (DGRC) will agree with each of the
Research Councils plans and goals for
increasing the rate of knowledge transfer
and increasing the level of interaction with
business through activities such as
collaborative research, start-up companies
and Small Business Research Initiative
(SBRI) (see chapter 5). Where these are not
already in place, Research Councils will
establish measures of collaboration, so that
progress can be monitored. Furthermore,
the level of interaction with business for
each Research Council will be subject to
peer review within Research Councils UK
and to external challenge by a group which
includes business representatives.
3.17. There are some good examples of
where industry has taken the lead in
making University Technology Centres
(UTCs) work (see Box 3.3). Proven benefits
from demand-pull collaboration will be a
factor in deciding application programme
priorities.
3.18. The complementary Lambert Review
of Business-University Collaboration has
identified many specific barriers to
collaboration which still remain.
Proposals in the Review for removing or
reducing these are summarised in Box 3.4.
The Government will respond to these
proposals by summer 2004.
Box 3.3
Imperial College University Technology Centre (UTC) in Vibration
Rolls-Royce established one of its first
UTCs at Imperial College. The UTC was
created to address a critical need for
enhanced capability in analysis and
prediction of vibration in gas turbine
components and structures such as fan
blading. From its inception the UTC had a
dedicated director at a senior level within
the College (Professor David Ewins) as well
as a full-time team of post-doctoral
research fellows and research students.
The group faced considerable problems in
successfully addressing the UTCs
technology field. In their initial work with
Rolls-Royce, aimed at establishing a core
knowledge base on vibration
understanding, it became clear that there
was a major technological advantage to be
gained by developing a new suite of
computer codes for aero-elastic analysis
and vibration prediction (now recognised
as the bench-mark analysis tool in its
class.) As the research team developed
new and improved engineering knowledge,
they were able to incorporate their
models into the latest releases of the
software code following full validation
through Rolls-Royce rig and engine
testing. This model validation through
‘hardware tests’ and ensuring the UTC
staff have visibility of, and involvement in
these tests, continues to be critical in
maintaining both an underpinning focus
for the UTC team and in transferring their
results and methods into the company
design teams and systems.
In this way the UTC outputs have been
used to address significant design
challenges in the Trent civil aero-engines,
in ground based combustion systems and
in the uniquely demanding design of the
vertical lift system for the Joint Strike
Fighter. Through projects such as these
the technology developed by the UTC is
tangibly converted into a commercial
benefit to Rolls-Royce.
INNOVATION REPORT
57
Box 3.4
Key proposals of the Lambert Review
of Business-University Collaboration
A greater role for the Regional
Development Agencies (RDAs) in
facilitating knowledge transfer
in their regions;
A new funding stream for businessrelevant research, along with increased
and improved “third stream” funding
for knowledge transfer;
Universities to develop a code of
governance and to demonstrate good
management and strong performance
in return for a lighter regulatory touch
from Government and the Funding
Councils;
Development of model contracts and a
protocol for IP to speed-up negotiations;
Encouraging new forms of formal and
informal networks between business
people and academics, including the
establishment of a business-led R&D
employers’ forum; and
Universities to provide more
information on student employability,
and businesses to take a greater role in
influencing university courses and
curricular.
A Technology Strategy
to increase innovation
3.20. However, on their own, these policies
are unlikely to achieve the breadth and
depth of business engagement needed to
realise significant improvements in
innovation performance. We have
increased the incentives for knowledge
creators in the SET base to “push”
technological knowledge towards
commercial exploitation. To be effective,
these must be balanced by complementary
policies to ensure that technologies with
the potential for strong economic, social
and environmental benefits are “pulled”
through by business from the SET base.
3.21. There are some demand-side
measures in place (e.g. R&D Tax Credits).
But these policies are not designed
specifically to focus efforts on those
emerging and potentially disruptive
technologies that have the greatest
potential to change market conditions or
improve the quality of life and the
environment. Through the IGTs, industry
is identifying significant demand-side
application needs (eg clinical trials proposals
from the bioscience IGT3 and new systems
demonstrators for the aerospace IGT4).
In considering these business priorities, we
need also to explore the opportunities for
collaborating across Government in areas
where there are common underlying
activities, such as the £4 billion spent outside
the science budget on R&D, the £100
billion plus that the public sector spends
on procurement, or innovative solutions to
climate change, waste minimisation and
other environmental challenges.
3.19. We have strengthened the
performance of the UK SET base. Policies
are in place to encourage knowledge
transfer and exploitation. Those directed
towards the UK SET base are discussed
above. Measures to help business exploit
the global knowledge base are discussed in
Chapter 7.
3
4
58
INNOVATION REPORT
“Bioscience 2015: Improving National Health, Increasing
National Wealth” DTI, 2003.
An independent report on the future on the UK:
Aerospace Industry, Aerospace Innovation and Growth
Team, DTI, 2003.
Chapter 3
Technology innovation
3.22. We can achieve this by bringing
business, Government, and the research
and knowledge transfer communities
together to identify the most important
emerging, potentially disruptive
technologies on the basis of their potential
economic, social and environmental
benefits for the UK. We then need to
develop collaborative, application-based
solutions to technology development,
drawing on the resources and instruments
available to all parties. Business has told us
that a strategic approach in this area is of
high importance (Box 3.5).
Box 3.5
Comment from CBI on importance
of a Technology Strategy
“The development of a Technology
Strategy for the UK is very welcome.
This should be a Government strategy
that is clearly led by business and
focuses on business priorities. The
starting point for identifying these
priorities should be our markets and
customers and the products and services
UK companies wish to develop for them.
We also look forward to the proposed
development of an innovation policy
framework that can guide regional
economic strategies and national policy
making. This will be critical for achieving
coherence and scale while also allowing
for regional disparities to be addressed.”
3.23. We propose to implement this
through developing a Technology Strategy
that will identify technology priorities.
The Strategy will be used to stimulate an
industry based technology programme.
It will have the potential to influence a
much wider set of Government policies as
well as the behaviour of business and
other participants in the innovation system
(e.g. RDAs and DAs).
3.24. The Technology Strategy will be
business-led, market focussed and need a
high level of stakeholder input. The process
will be based on the development of
stakeholder networks and advisory groups,
which DTI will support and facilitate.
There will be close collaboration with
important established business networks,
such as the Information Age Partnership,
IGTs, technology intermediaries and Public
Sector Research Establishments (PSREs).
The DTI will also be pro-active in brokering
collaboration and the development of
networks in sectors where these would be
beneficial but are not well established,
such as high tech services, photonics and
fuel cells. Stakeholders that we expect both
to contribute and benefit from the strategy
process would include:
individual businesses;
business organisations (CBI, Chambers
of Commerce, trade associations);
Research and Technology Organisations
(RTOs);
Public Sector Research Establishments;
professional institutes;
Devolved Administrations (DAs);
RDAs and the proposed regional Science
and Industry Councils (see Chapter 6);
Other Government Departments (OGDs);
research Councils and universities; and
Non Governmental Organisations (NGOs).
INNOVATION REPORT
59
3.25. A high level Technology Strategy
Board will ensure the technology priorities
are market focussed and will advise on
the broad allocation of resources to them.
The Board will also act as a high level
forum for interaction between business,
Government and other stakeholders.
Innovation works best when there is a
clear market and business pull and we
will focus the Technology Strategy on this
basis. The main criteria for prioritising the
Technology Strategy themes will be:
the degree to which technologies will
have an impact on sectors that are a
major UK strength (eg pharmaceuticals
and aerospace) or have high growth
potential;
the degree to which a particular
technology will have an impact on a
number of sectors;
strength of the UK SET base relative to
other countries;
potential economic, social, quality of life
and environmental benefits and scope
for cross-government collaboration
(e.g. healthcare, energy);
potential for spill-over benefits and
whether there is an underpinning market
failure; and
the degree to which there is scope for
effective action by Government or others.
We have identified a number of ways in
which the Technology Strategy can
influence government policy in addition to
setting priorities for DTI’s business support
programmes:
providing an information source that
other Government Departments can use
to inform their own R&D and
procurement priorities;
providing a resource for technology
support funded by RDAs and the DAs
(which may involve collaboration
between regions and/or with central
government);
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INNOVATION REPORT
signalling technologies where action
might be needed to strengthen the
supply of technical skills;
signalling technologies where particular
attention to regulatory issues may be
justified (Chapter 5);
generating a higher level of awareness
of IP issues (complementing the actions
in chapter 4);
informing negotiation of EU Framework
programmes; and
informing the development of standards
and measurement (Chapter 4).
3.26. The benefits of the Technology
Strategy will build over time. It has the
potential to become a key information
source, including technology road maps,
for all participants in the innovation
system, strengthening co-ordination and
improving effectiveness at all levels.
3.27. Scottish Enterprise has also been
allocated funding by the Scottish Executive
for 3 Intermediary Technology Institutes
(ITIs). A total of £450m over 10 years will
be spent on them. The 3 ITIs are based on
the sectoral areas of communication
technology and digital media “Techmedia”,
energy, and life sciences. The activities
within the Institutes will reflect a strong
partnership between key global market
drivers, local companies and researchers.
The Institute will commission, from leading
researchers, locally and worldwide, precompetitive market focused research in
these key technologies. The resulting
intellectual capital assets will be assessed
and bundled within the Institutes with the
primary objective of building new high
growth, market-focused, sustainable
technology companies. Other channels for
commercial exploitation of IP may include
licensing to existing companies, whether
Scottish, UK based or international, or
selling IP to others willing to take ideas to
the market. A key aim is to increase
substantially the level of exchange between
academia and the corporate sector in
Chapter 3
Technology innovation
Scotland, helping develop not just a transfer
of skills but also a more commercial and
entrepreneurial culture and ethos in the
Scottish academic science base.
3.28. Of the countries we have reviewed,
several operate some form of strategic
selection of technologies and research
themes. The models used by the Finnish
technology agency (TEKES) and by Japan
appear closest to our proposal.
More effective DTI support for
technology innovation in businesses
3.29. Like other Governments around the
world, the UK Government provides
support for technology innovation where
private firms may under-invest in
knowledge acquisition and development
through R&D because of market or system
failures. Such investment can be justified
on the basis of:
Spillover benefits – technology
development in one firm may produce
benefits elsewhere in the economy that
are not captured by the firm making the
investment. Even collaborations with
other firms may not be sufficient to
capture all the benefits because some
will arise in unanticipated areas (e.g.
different sectors). These benefits can
also be social or environmental.
High degrees of risk – the development of
the technology may be uncertain, as may
be the commercial potential. These
uncertainties are likely to be greatest at
the early stages in taking an idea from
basic research through to a commercial
application, while the size of investment
can be significantly greater through the
subsequent development and prototyping
phases. There may be information
asymmetries between the firm wishing
to innovate and potential backers.
Access to finance may be particularly
difficult for Small and Medium-sized
Enterprises (SMEs) who are less likely to
have access to internal finance or equity
funding (discussed later in this Chapter).
Barriers to effective co-ordination
between the SET base and business, and
between different businesses.
Technology applications are also
increasingly likely to cross sectors and
these linkages – especially between
manufacturing and service industries –
may not be well appreciated or
developed. Government can facilitate
knowledge transfer between businesses
by enabling or creating networking
opportunities. Direct and indirect
Government involvement can build trust
between participants, e.g. by allaying
concerns about protection of IP.
Government can also facilitate business
collaboration for major technology
validation programmes cutting across a
range of companies and potentially
sectors. The complementary Lambert
Review has made proposals to remove
or reduce remaining barriers to business/
university collaboration (see Box 3.4).
3.30. DTI currently provides about £200m
of support each year through a range of
public-private partnerships and
interventions to help the technological
innovation activities of individual firms.
Over the years, the number of schemes has
grown and many of them have been on
such a small scale that they have had very
little impact. While some individual
programmes have been successful in
meeting their objectives, the lack of focus
means that important areas have not been
covered and that some less important ones
have received support. DTI’s support for
innovation and other activities has been
expensive to administer and difficult and
confusing for companies trying to use it.
INNOVATION REPORT
61
3.31. DTI has, therefore, changed its
approach to business support, drawing
on the available evidence to build on what
works best3. As a result, the number
of schemes will be reduced from over a
hundred to around ten.
3.32. In future, support for technological
innovation will be available through five
products, which build on the most
successful elements of previous schemes.
The five products are:
Collaborative R&D support is available
to meet some of the costs and risks
associated with research and technology
development, by facilitating
collaboration between different
businesses and between business and
the SET base across the UK. Evaluations
of previous DTI programmes in this area
point to significant benefits from these
investments. The focus of future
programmes, however, will be on
broader strategic areas of technology
likely to impact across sectors and key
market priorities and thereby engage
with a broader range of industrial
participants. The Collaborative R&D
product builds on the LINK scheme.
Details of LINK programmes can be
found in the Annex.
Knowledge Transfer Networks will
encourage the diffusion of new and
existing technology. The product builds
upon the existing Faraday Partnerships,
which connect universities and
independent research organisations with
business and finance in key areas of
technology. In the last 5 years we have
increased the number of Faraday
partnership from 4 to 25. Today Faraday
Partnerships bring together about 51
university departments, 27 independent
research organisations, 25 intermediary
organisations and more than 2,000 firms,
large and small, covering a wide range of
3 A review of the evaluation evidence for DTI innovation
programmes is presented in the Annex of the analytical
report.
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INNOVATION REPORT
areas from advanced materials to farm
animal genetics. While this type of
networking will continue, the new
arrangements provide for a wider, more
flexible range, of networking activities to
deepen and broaden knowledge transfer
into UK businesses and will focus on
areas that have the potential to maximise
UK productivity. Details of Faraday
Partnerships can be found in the Annex.
Grant for R&D from June 2003 this has
been available for individuals and SMEs,
and it enables them to meet some of the
costs of investing in technology
innovation. The Grant for R&D is based
on, and enhances, the successful Smart
Awards. In the last year in England, the
Grant for R&D/Smart scheme has
supported 974 small businesses, offering
a total of £52.4m of grant funding.
The levels of support allowed have been
increased within European Community
state aid rules. Access to the grant is
also being improved. This grant is for
supporting specific projects and
therefore complements the R&D tax
credit, which is only available after
expenditure is incurred. Comparable
support is provided in Scotland through
the SMART, SPUR and SPUR PLUS .
Grant for Investigating an Innovative
Idea – this is a pilot, offering help to
SMEs in England to look objectively at
their ideas for innovative products,
services or processes and to draw up
an action plan to take the idea forward.
The Grant provides 75% of the costs of
outside experts.
Knowledge Transfer Partnerships
provide direct support for knowledge
transfer by enabling universities and
others in the SET base across the UK to
work with businesses using recently
qualified people, like graduates, to
undertake specific knowledge transfer
projects in firms of all sizes. This builds
on the former Teaching Company Scheme
(TCS). The 900 TCS programmes in
operation at March 2003 representing over
1000 graduate projects. Total Government
Chapter 3
Technology innovation
Box 3.6
How Government is supporting the development of nanotechnology
Nanotechnology, the importance of
which was highlighted in paragraph 3.1,
simply groups under one heading a
range of technologies that deal with the
engineering and applications of very
small particles approaching the sizes of
small molecules and atoms. There will
be exciting opportunities for micro- and
nano-technological applications in most
industries. The technology is already
being applied in products as diverse as
sun creams and self cleaning glass.
Advanced pharmaceutical applications
may include the monitoring of patient
condition by inserting nano-components
into the blood stream. The global market
for nanotechnology is forecast to exceed
US$1000 billion within the next decade.
Worldwide government funding for
nanotechnology R&D last year alone
exceeded US$2 billion.
In July 2003, Lord Sainsbury announced
the latest DTI support for
nanotechnology, a cash injection of £90m
expenditure in 2002/03 was over £24m.
Successive reviews of TCS confirmed the
value to business of the technology
transferred. 80% of companies involved
believe that knowledge transferred
during the placement was either new to
the firm or represented a considerable
advance of their knowledge base.
Whereas TCS was largely restricted to
two-year projects, the new form of
support is more flexible, allowing
projects from between 1 and 3 years and
encouraging a wider engagement of
knowledge based partners (such as FE
colleges).
For Scotland: The Scottish Executive
have established a National Intellectual
Assets Centre (NIAC) to help business by
raising the profile of intellectual asset
management and providing expert
advice. There are also two new grant
over the next six years to help industry
harness the commercial opportunities
offered by nanotechnology. £50m will
be spent on collaborative R&D and
£40m on a new network of micro and
nanotechnology facilities. This will help
business build on the UK’s excellent
track record in small-scale science and
win a share of this developing market.
The DTI, RDAs and DAs have worked
with industry, universities and Research
Councils to provide businesses with
access to a network of facilities for
research, fabrication and prototyping,
including those engaged in MicroNano
Technologies in the UK, the UK
Microsystems and Nanotechnology
Network (MNT). The DTI investment is
expected to secure additional industry
and regional spending exceeding
£200m and will provide a boost to
future advanced manufacturing in the UK.
schemes. The SME Collaborative
Research (ScoRe) programme is
designed to support R&D projects jointly
undertaken between public sector
research bodies (such as universities,
Research Institutes, NHS Trusts) and
Scottish SMEs. The complementary
Scottish Expertise Knowledge and
Innovation Transfer (SEEKIT) programme
will provide support for research baseindustry interface and outreach activities
that are not currently funded by existing
mechanisms. This will lead to projects
which encourage productive knowledge
transfer activities between SMEs,
Research Institutes, Technology Transfer
Offices (TTO) and higher and further
Education Institutes.
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63
SCORE is aimed at encouraging
businesses to undertake collaborative
research projects with the science base.
SEEKIT provides support research
base- industry interface and outreach
activities.
3.33. The Technology Strategy will increase
the coherence and effectiveness of DTI
support for the exploitation of basic
technologies and applied research in
emerging or ‘breakthrough’ technologies
where the science is largely known but the
potential for exploitation and development
is strong (Box 3.6). Specific themes will be
identified to which DTI will give priority in
allocating resources for technology
development, taking account of the EU
Framework Programme (see Chapter 7,
paragraphs 19 to 23 for details). Assistance
will largely be delivered through the
business support products for Collaborative
R&D and Knowledge Transfer Networks.
3.34. There are already precedents of how
this top-down approach is encouraging
greater business R&D activity. For example,
Ministry of Defence (MoD) has developed
its technology strategy around technology
themes, which it calls “Towers of
Excellence”. As a result, it has launched a
series of collaborative technology
programmes with industry called Defence
Technology Centres (DTCs). Encouragingly,
these now involve a number of nondefence companies.
3.35. There are also strong examples of
how an underlying technology can have
applications in several different sectors.
For example, the e-science (grid
computing) programme was developed
to help scientific researchers by linking up
large computers and databases.
The infrastructure created has already been
used by several sectors (medical,
aerospace) to accelerate new
developments (Box 3.7). As grid computing
technologies develop they will permit
maximum use of the internet by enabling
businesses of all sizes to share resources
such as processing power and database
access in secure, seamless, transparent
and flexible ways. They will give
businesses on-demand access to massive
Box 3.7
Application of Grid Computing
Mammography Case Study: e-diamond
The e-diamond (Digital Mammography
National Database) project was established
to deliver a prototype database of
standardised mammograms for improved
diagnosis, training and epidemiology
implemented using grid technology. It will
be used to aid the work of clinical and
support staff involved in the NHS Breast
Screening Programme. The project has
been carried out by an industry-academic
collaborative ICT R&D team working closely
with a range of clinical partners, from Guy’s
and St Thomas’s NHS Trust to the South
East Scotland Breast Screening Centre.
The project uses the Standard Mammogram
Form (SMF) for image comparison.
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INNOVATION REPORT
A photographic-film mammogram’s
appearance can vary with image capture
settings, making diagnosis based on film
density difficult and potentially
misleading. However the SMF
representation gives reliable information
about the amount of glandular tissue in
the breast. Grid technologies will provide
high-speed access to image data from a
cohort of patients across the UK and
advanced analytical and data-mining
tools to aid diagnosis of the SMF under
examination. Moreover such a database
will allow in-depth studies to determine
the impact of the environment and
lifestyle on the development of breast
cancer and aid clinicians in the
development of better treatment options.
Chapter 3
Technology innovation
computing power and to functions such as
collaborative design, simulation, modelling
and information services.
3.36. We will make a start by funding
applications of technology priorities from
the rationalisation of current DTI schemes
that are gradually being closed down and
from major technology programmes
already announced but where funding has
yet to be allocated to specific projects
(eg nanotechnology, renewable energy).
We will start this new approach by
launching, between now and spring 2005,
application programmes totalling some
£150m over their lifetimes. The themes to
be supported in the very first programmes
will be those already identified by IGTs and
related industry expert groups as
important: nanotechnology, renewable
energy, sustainable technologies, life
sciences and systems/ICT. As emphasised
earlier, essential to the success of these
and future programmes will be close
alignment with priority market
applications such as transport (including
aerospace and automotive), health care,
construction (including sustainable
buildings), digital content, retail/logistics,
and financial services.
3.37. In allocating money to these
programmes we will be looking particularly
for collaboration between business
(including business to business and
businesses which traditionally have not
participated in such programmes, the latter
point is also one of the recommendations
in the Lambert Review), the Research
Councils, other Government Departments
and technology intermediaries. Defence
and Aerospace Research Partnerships
(DARPs) are one example of how such
collaboration can leverage funding. In one
programme, DTI funding was tripled by
additional support from EPSRC, the MoD
and industry. Some of these potential
sources of collaboration are discussed below.
3.38. The Technology Strategy Board will
help in the identification of priority areas
for collaboration between DTI and the
Research Councils, and DTI will increase
co-funding of projects with the Research
Councils in order to facilitate the
participation of a wider range of companies
in strategic technology investments.
Technology Intermediaries
3.39. To complement the above actions,
we will work more closely with technology
intermediaries, whose role in technology
development and transfer has been
undervalued in recent years in both policy
development and implementation.
Technology intermediaries also have an
important role to play at regional level,
working in partnership with RDAs and DAs.
3.40. The principal members of the
technology intermediaries community are
the Research and Technology
Organisations (RTOs). They are a private
sector community of effective knowledgetransfer companies. Their objective is
knowledge transfer to industry to fill
knowledge gaps and to stimulate
innovation leading to higher value added
products and services.
3.41 Collectively the RTOs employ over
20,000 scientists and engineers and have
annual turnover in excess of £2 billion. It is
one of the largest communities of its kind
in Europe and has over 30,000 clients
globally. Their main activities include:
support for in-company innovation
champions by in-sourcing expertise and
the required business model plus
underpinning technology to increase
productivity;
translating ‘raw’ knowledge into applied
opportunity, understood by company
management, and management of the
integration process;
INNOVATION REPORT
65
working with universities to develop an
idea or competence into a business
proposition which will attract ‘second’
stage funding and subsequent
investment;
working with universities to optimise
spin-out or licensing and manage the
contracting process;
auditing organisations for underexploited innovative assets and bringing
them to market; and
help for companies with low R&D
capability.
The RTOs have also played a central role
in establishing and managing Faraday
Partnerships as part of the increasing
emphasis on technology transfer and
adaptation (see Knowledge Transfer
Networks in paragraph 3.32, and Annex A
to the Report for further details).
3.42. This combination of roles and
capabilities makes intermediary bodies
vital in sharing knowledge – not just from
the SET base to business, but also in
helping businesses develop the technology
to fruition. We will ensure that they are
closely involved in policy formation and
delivery, both as participants in the
development and implementation of the
Technology Strategy and by encouraging
their involvement in the application
programmes.
Finance for technology innovation
3.43. If UK companies are to reach their
full potential it is essential that they have
access to the finance they need to make
the investment necessary for future
success and growth. This is an area of
strength for the UK which has welldeveloped capital markets compared to
other European countries, and is second
only to the US in world terms.
Overall the majority of UK businesses can
access the finance they need to operate
their business.
3.44. However, this generally positive
overall picture does mask some underlying
problems for certain businesses.
For example, start-up businesses and those
lacking a track record sometimes face
difficulties in accessing debt finance, and
SMEs with high growth potential are often
unable to raise the relatively modest
amounts of equity finance required to meet
their growth ambitions. The problems
maybe more acute in particular areas
where the risks are especially high (e.g.
bioscience)4.
3.45. To help address these “finance gaps”
the Government has implemented a range
of targeted measures. For example, the
Small Firms Loan Guarantee Scheme
provides support for debt finance where
businesses lack the necessary collateral
to obtain a loan. The Enterprise Investment
Scheme and Venture Capital Trusts offer
tax incentives to support investment in
early-stage businesses affected by the
finance gap.
3.46. Regional Venture Capital Funds have
also been set up across England. These are
investing a total of up to £270m in SMEs
with growth potential, backed by up to
£80m of Government funding. Initial
investments are restricted to amounts of
up to £250,000, with an opportunity for a
follow-on investment of up to £250,000
after six months. The Early-Growth
Funding Programme complements the
regional funds by providing smaller
amounts of risk capital, averaging around
£50,000, for start-up and early-stage
businesses. Similar arrangements are in
place in Scotland and Wales. For example,
the new Scottish Co-investment Fund,
with £20m from the Scottish Executive and
£25m from European Regional Development
Fund (ERDF) funding, matched by the
private sector, will help address the early
stage equity gap in Scotland.
4 Reference: innovation review Bioscience 2015 report.
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INNOVATION REPORT
Chapter 3
Technology innovation
3.47. Recognising that the long lead times
and uncertainties associated with
investment in technology-based firms may
lead to particular problems in accessing
funding, the Government also supports the
UK High-Technology Fund – a ‘fund of
funds’ supporting early-stage hightechnology businesses across the UK. The
Government acts as ‘cornerstone’ investor,
leveraging over £100m of additional private
sector investment. Complementing this
fund, the University Challenge Fund
provides capital for early-stage financing to
enable universities to develop business
proposals and spin-off companies. It aims
to strengthen public-private partnerships
by supporting the transfer of science,
engineering and technology research to
commercial application.
3.50. To encourage greater levels of
investment in R&D, which is a crucial
component of innovation, the Government
has also introduced R&D Tax Credits for
SMEs and large companies and is currently
consulting on possible ways to improve
and clarify the definition of R&D for Tax
purposes.
3.51. The Grant for R&D in England,
building on the successful SMART Awards,
can play a significant role in helping
to finance small, fast growth, high tech
businesses. Increased funding for this
scheme will be one of our priorities for
the future.
3.48. While these targeted interventions
each make an important contribution in
stimulating an increased supply of risk
capital to smaller businesses, the
Government recognises that some
innovative firms seeking modest sums of
capital are still affected by the equity gap.
The Government has recently published
the findings of its Bridging the Finance Gap
consultation, which take into account the
views expressed by a wide range of
interested parties from the business and
finance communities.
3.49. In the light of these findings, the
Government has announced a series of
proposals to build on the success of its
existing interventions. It has also
announced its intention to establish a
‘pathfinder’ round of Enterprise Capital
Funds (ECFs), based on the Small Business
Investment Company model that has
played an important role in channeling risk
capital to smaller companies in the US
over the past 45 years. ECFs will be
commercial venture funds, investing a
combination of private and public capital in
UK-based companies that are affected by
the equity gap.
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67
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INNOVATION REPORT
Chapter 4
National
innovation assets
INNOVATION REPORT
69
Summary
In addition to a strong science, engineering
and technology (SET) base, the UK has
a number of well established institutions
that have performed essential and highly
specialised functions for government,
business and researchers.
These institutions are a potential
knowledge bank for business enabling
them to develop new products and
services. They constitute our national
innovation assets. They can help
businesses and we need to increase the
impact they have.
Every product and service we use depends
on accurate, often leading-edge
measurement and instrumentation.
Without accurate and consistent
measurement, these goods and services
could not be reproduced or commercially
exploited and scientific research would be
severely constrained.
The National Measurement System is the
infrastructure which underpins the
standards of measurement and develops
the measurement technology that is a key
driver of innovation in our economy. The
NPL (National Physical Laboratory), LGC
(the former Laboratory of the Government
Chemist), NEL (the former National
Engineering Laboratory) and the NWML
(National Weights & Measures Laboratory)
are our National Measurement Institutes
(NMIs) and the principal suppliers of these
standards and technical services. These
institutions are acknowledged as being
amongst the best in the world.
We will ensure that the objectives of our
National Measurement System are
developed to include a greater focus on
innovation. The NMS will be tasked with
increasingly focusing research
programmes on emerging technology
areas, working in line with the
Technology Strategy, initiating 15-25
co-funded research projects each year
in collaboration with industry and
facilitating up to 250 product
development projects per year.
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INNOVATION REPORT
We will facilitate 20 exchange
secondments between National
Measurement Institutes and industry to
promote additional knowledge transfer.
The management of Intellectual Property
(IP) (patents, trademarks, copyright and
designs) is also crucial for innovating firms.
Our IP framework is managed by the
Patent Office, though much policy
development takes place at European and
global levels. The Patent Office has also
developed strong links with the National
Intellectual Assets Centre (NIAC) in Scotland.
Businesses need to make well-informed
decisions on how to manage their IP and
guard against infringements of their
intellectual property.
The Patent Office will develop a major
awareness-raising programme building
on its involvement in Business Advice
Open Days and a new national strategy
for dealing with IP crime.
The Community Innovation Survey for
1998-2000 found that 60% of UK
businesses that are engaged in the
development of new products, services or
processes gain useful information from
standards and regulations. Standards also
help innovation by diffusing technical
knowledge. A National Standardisation
Strategic Framework (NSSF) has been
developed and will be implemented with
the Confederation of British Industry (CBI),
British Standards Institution (BSI) and other
partners to provide industry with an
improved service.
Chapter 4
National innovation assets
National Measurement
System (NMS)
4.1. The National Measurement System
(NMS) is the infrastructure that underpins
the measurement standards and develops
the measurement technology essential to
our modern economy. The NMS includes
the National Physical Laboratory (NPL),
LGC (the former Laboratory of the
Government Chemist), NEL (the former
National Engineering Laboratory) and the
NWML (National Weights & Measures
Laboratory), all of which supply DTI funded
standards and technical services.
4.2. Measurement standards are public
goods. Firms have little incentive to
develop these since they cannot exclude
other firms from the benefits. Furthermore,
there are efficiency gains to be made from
the use of standard measurements.
Although productivity benefits of the NMS
are largely taken for granted, they are
substantial and widespread1. One indicative
estimate suggests that metrology underpins
around £5 billion of Gross Domestic
Product (GDP2). The NMS is particularly
important to the UK’s instrumentation
sector, itself worth £8.1 billion. NMS
ensures that its technical research can give
UK manufacturers a technical edge and
also secures quality of life benefits – such
as better control of therapeutic radiation
dosages for cancer patients.
1 Swann GMP (2003) Case studies, mechanisms and a
micro model of measurement impact, report to the DTI,
27 August.
2 PA Consulting (1999) Review of the rationale for and
economic benefit of the UK National Measurement
System, report for DTI, 8 November.
Box 4.1
Standards project removes
barriers to innovation
An NMS project has been instrumental
in revising Standard ISO 51673, thereby
reducing some of the technical barriers
in North Sea oil and gas installations.
NEL analysed the results of US research
to prove that gas installations could be
radically redesigned, but still remain
within the accuracy (and safety)
requirements, and then ensured that the
redesign was incorporated into a revision
of the Standard. The advantages arising
from the revised Standard’s specification
are many: reduced material costs,
manufacturing savings, platform space
and weight reductions, all of which
contribute to significant overall financial
benefits. It has been estimated, for
instance, that in one typical installation
(named Rhum), AMEC stand to achieve
a saving of approximately £1m.
These savings were made on just one
tieback to one platform and there are
several hundred such installations in
the North Sea alone. The UK oil and gas
industry is now set to exploit the
advantages of the revised Standard
and benefit from its consequential huge
cost savings.
4.3. The NMS impacts on innovation
performance by helping develop new
technological knowledge and improving
the capacity of firms to absorb and exploit
it. The laboratories and other organisations
that make up the NMS also provide
partners for networking and collaboration.
NPL has, for example, always been at the
forefront of groundbreaking collaborative
research, which in turn is applied by
business.
3 Measurement of fluid flow by means of pressure
differential devices.
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71
Box 4.2
High fliers
Box 4.3
Helping small manufacturers to innovate
The National Physical Laboratory (NPL)
has teamed up with Virgin Atlantic
Airways, the Mullard Space Science
Laboratory (MSSL) and the Civil Aviation
Authority (CAA) to measure and interpret
the effect, if any, of cosmic ray doses on
aircrew. Measurement of these doses has
now been made on over seventy flights
all over the world. This team brings
together expertise in airline management
(Virgin), expertise in solar and cosmic ray
physics (MSSL), legislative and medical
knowledge (CAA) and skills in instrument
calibration and interpretation (NPL).
Millbrook Instruments, a Lancashire
based instrumentation company
employing 6 people, has recently
launched the MiniSIMS, a popular new
desktop instrument for secondary ion
mass spectroscopy (a technique used for
the surface analysis of materials and a
vital tool in the development of new
materials). The charge neutralisation
system used by this chemical microscope
(used by analytical laboratories) is based
on developments in measurements by
NPL scientists as a result of DTI funded
NMS research. These product
improvements would not have been
possible without NPL’s work, which
enabled Millbrook staff to develop inhouse expertise very quickly.
Since Millbrook started offering the
charge neutralisation system as an
accessory to the MiniSIMS, they have
had 100% take up from customers.
Already 15 instruments have been sold –
worth around £1m of sales.
4.4. The NMS also has a strong track
record of addressing more immediate
industrial problems and supporting our
quality of life. It also works in partnership
with smaller UK manufacturers to help
develop innovative products.
4.5. The challenge now is to ensure that
NMS programmes address the needs of
emerging technologies and that UK-based
companies take up its services. We have to
raise awareness, and bring its expertise
to the attention of a much wider audience,
encouraging the kind of exchange with the
NMS that has characterised the transfer of
knowledge between business and other
centres of expertise.
Facilitating knowledge transfer
4.6. We will run a campaign to publicise
the expertise of our National Measurement
Institutes (NPL, NWML, NEL & LGC) and
services to businesses. We will provide
regional focus by using local and sectoral
intermediaries.
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Chapter 4
National innovation assets
4.7. We will introduce 15-25 measurement
research projects co-funded with industry,
which can be executed on a much-reduced
timescale. This will allow greater scope for
shorter-term research projects, more
flexible arrangements on ownership of IP
and co-funding ‘in kind’ rather than cash.
4.8. In collaboration with industry, we will
take part in up to 250 product development
projects per year across the UK. This will
involve SMEs receiving free measurement
consultancy from the most relevant
National Measurement Institute, in order
to help them refine near-market prototype
products.
4.9. We will set in train 20 exchange
secondments between our NMIs, industry
and other bodies to assist the
development of new products and
techniques. This will introduce business
people to the facilities and expertise
available inside the NMIs and allow NMI
staff to gain a better understanding of UK
business priorities.
Technology Strategy. The aim will be to
provide UK industry with world-leading
measurement tools to drive forward
innovation and gain competitive edge.
4.12. We will ensure that the objectives
of our National Measurement System
are developed to include a greater focus
on innovation.
Intellectual Property Rights (IPR)
4.13. Intellectual Property Rights (IPR)
underpin innovation by providing a tool
for businesse to make a return on its
investment. For many innovators, access
to finance is impossible without IP
protection. Furthermore, the patent regime
helps to spread technological knowledge
because applicants have to disclose
information about their invention. IP laws
aim to strike the right balance between
protecting new developments and
stimulating competition. The UK, through
the Patent Office, works to ensure that its
own IP regime and the international
framework balance these two objectives.
Addressing new technologies
4.10. Leading-edge industrial innovation
depends on exploiting new scientific
developments, but unless it can be
measured, a process or product cannot be
reproduced or commercially exploited.
That is why other world leading NMIs
(such as the PTB in Germany and the NIST
in the US) are developing advanced
measurement capabilities to enable their
industries to compete at the leading edge.
We need to take advantage of our strong
science base and of our world-class NMS
to exploit the emerging and disruptive
technologies, which hold such promise for
the future.
4.14. New developments can be protected
through formal IPR, such as copyright,
trademarks, designs and patents, for which
the Patent Office has responsibility.
Informal methods, such as know-how,
speed to market, confidentiality agreements,
and secrecy, also play a role. Which
options, or combinations, are chosen will
depend on a number of factors, not least
the level of awareness of those options.
4.15. The following schematic illustrates
how IPRs can interact with the generation,
development and protection of ideas,
including using information available
through IPR.
4.11. We will set up a visionary new
programme on Measurement for Emerging
Technologies. This will address work on
nanotechnology and the biosciences and
will be closely integrated into the
INNOVATION REPORT
73
Figure 4.1
IPR in Innovation
searching IPR to find
potential business
or research partners
raising cash for
or employees
development using
IPR as security
avoiding or
licensing other
peoples' IPR
recognising and
protecting IPR
enforcing
IPR
maintaining
checking
IPR
competitor
activity
adding IPR as
(including
product/service
their IPR)
is developed
information from
existing IPR
£D$
idea
something to sell
(product or service)
£
£
£
profits
£
Innovation – the exploitation of new ideas
The IP framework
4.16. The Patent Office will continue to
work to improve the cost-effectiveness of
the IPR system internationally and
nationally, by building on successes such
as the agreement to streamline and update
the European Patent Convention; the
implementation of EU-wide design rights;
and the recently announced agreements
improving the Madrid protocol system for
international trademark registration.
Use of the IP
system by UK business
4.17. The UK has a strong system of
rights4, and strong institutions5, but most
UK businesses, including large firms, do
not place a great deal of emphasis on
formal methods of IP protection (see figure
4.2). It may be that informal methods are
preferable in some circumstances.
4 Global Competitiveness Report data cited in Porter M
(2003) ‘UK Competitiveness: moving on to the next stage’
DTI Economics paper number 3.
5 Quinquennial Review of the Patent Office (2001);
Evaluation of OHIM by Deloitte Touche (2003).
74
INNOVATION REPORT
4.18. However UK businesses, especially
SMEs, may not have a grasp of the
fundamentals in order to make informed
decisions about which options to choose
relative to their competitors. For example,
patent-based indicators show that the UK
patenting activity lags a long way behind
the larger economies, such as Japan and
the US [see chapter 1]. In the manufacturing
sector, the UK average for the proportion of
innovators that had applied for at least one
patent in a three year reference period
1994-96 was 18%, compared to an EU
average of 25%6. A similar picture emerges
from trademark data7.
4.19. Large firms are more likely to take
out a patent than SMEs8 and more
enterprises in manufacturing take out
patents than those in services. Those
manufacturing industries where firms take
out most patents are also those that have
the highest R&D intensity.
6 Community Innovation Survey (1994-96).
7 OHIM benchmarking report comparing the performance
of 10 offices worldwide, including the USPTO (June 2003).
8 According to the UK Community Innovation Survey 2000.
Chapter 4
National innovation assets
Figure 4.2
Enterprises who attach importance to IP protection
Percentage of enterprises who attach some importance to IP protection - large firms (500+ employees)
(CIS 1998 - 2000)
70
60
50
40
30
20
10
Box 4.4
New antennas for mobiles
Wireless innovator Sarantel Limited has
patented a new antenna, PowerHelix®,
that provides a consistently low level of
electromagnetic energy absorption for
mobile phone users. Other benefits include:
extended battery life; improved signal
reception and improved sound quality.
L
ad ead
va -tim
nt
ag e
e
Co
m
of ple
de xit
sig y
n
y
ec
cr
Se
nf
ag ide
re nti
em ali
en ty
ts
rig
py
Co
te
Pa
Formal
Co
ht
s
nt
ks
ar
em
ad
Tr
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of stra
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0
Informal
4.20. While this highlights the importance
of patents to many manufacturers, other
types of IPR are more relevant to other
sectors. Service-related businesses rely
less on patentable technology and more
on brand protection and copyright.
The creative industries are heavily dependent
on copyright.
IP awareness
Before going too far into product
development, Sarantel first carried out
patent searches to ensure that the idea
they were seeking to exploit was not
already covered by others’ products, and
once they had a prototype, made sure
they further protected it by registering its
name as a trademark. They are now
exploiting its extensively patented
technology through licensing both
patents and trademarks.
4.21. While such evidence requires careful
interpretation, a consistent picture is
emerging: UK companies allocate a lower
level of resources to innovation activities
(such as investment in R&D) and this
is reflected in lower rates of patent and
trademark activity. It seems likely that
some firms, particularly SMEs, lack
knowledge of IPR and consequently do
not make informed decisions.
INNOVATION REPORT
75
4.22. To improve IPR awareness we will:
target SMEs to ensure they can use the IP
system effectively. This will build on the
success of current initiatives such as HM
Customs and Excise-led Business Advice
Open Days, and will involve the provision
of training in IP to business advisors and
launching a project providing free national
IP advice in the second half of 2004.
In Scotland the coordination of awareness
raising in the areas of formal and
informal IPR will be undertaken by the
Patent Office and the NIAC respectively;
improve the available evidence base on
IP use and awareness as well as develop
appropriate metrics to monitor and
assess progress; and
target ‘innovators of the future’ such as
business studies, design and technology
students and entrepreneurs to raise awareness of IP. The first element is a revised
version of the successful ‘THINK kit’, due
to be launched by Spring 2004. Further
specific proposals will be tabled in the
Patent Office Corporate Plan by April 2004.
Box 4.5
Building on success
The Patent Office’s new educational
resource, ‘THINK kit’, has been an
unprecedented success in putting
intellectual property at the top of the
learning agenda. Within a month of its
launch at the Education Show in March
2003 over 51% of UK secondary schools
had requested a copy. THINK kit is a
comprehensive resource, which covers all
forms of IP and has been developed for
14 – 16 year old design and technology
and business studies students. It
comprises five case studies relating to
Audi®, Virgin®, Pop Idol®, Adidas® and I C
Can and these are supported by a full set
of teachers’ notes.
The Patent Office will be building on this
success and developing the product to
use in business schools.
76
INNOVATION REPORT
Enforcement
4.23. Formal IPR can be rendered ineffective
unless owners take strong enforcement
action. It is often regarded as expensive
and time consuming, especially for SMEs
who often lack the means to both police
and enforce IPR. Resorting to litigation
is expensive and risky: all too often larger
companies make use of this fact to prevent
smaller innovators from succeeding, or to
avoid paying their dues. Such difficulties
can have an influence on decisions to adopt
formal IPR.
4.24. Some of the difficulties of enforcement
have been underlined by the work of the
Government’s high-level independent
advisory body, the Intellectual Property
Advisory Committee (IPAC)9. The committee
has recommended several concrete measures
(some listed below) but has not advocated
sweeping changes to the IP system.
4.25. To improve confidence in protection
we will:
improve the speed and costs of
resolving IP disputes, by improving
litigation procedures (e.g. extending
the jurisdiction of the Patents County
Court as a lower cost alternative to
the High Court by November 2004); and
conduct a feasibility study of a new
institutional arrangements to help SMEs
protect their IPR, which will report on its
conclusions in summer 2004.
4.26. The creative industries are one of the
UK’s success stories, accounting for 8.2%
of Gross Value Added in 2001 and 1.9m
jobs in 200210. The UK is a world leader
in many fields, such as music, in which it is
estimated that it has 10-15% of the world
market, second only to the US. Creative
industries depend on IPR and recognise
that the protection and enforcement of IPR
assets are a key to their competitiveness.
9 IPAC is an advisory body formed in 2001 to give
independent advice to the Government on intellectual
property issues (http://www.intellectualproperty.gov.uk/ipac)
10 According to http://www.culture.gov.uk/creative_
industries/default.htm
Chapter 4
National innovation assets
4.27. The music and content sectors in
particular face a specific and potentially
life-threatening commercial and technical
challenge from new digital distribution
methods. IPR, especially copyright, can be
more difficult to protect in digital than
printed media, and the prevalence of illegal
file sharing means these sectors have to
overcome huge hurdles in educating
consumers and developing innovation
business models, for example, strong
alternatives to free down-loads. The
Broadband Stakeholder Group (BSG), the
Government’s key advisory body on
promoting broadband services, is working
with the Digital Content Forum and others
to build consensus between stakeholders
on how to proceed. The Government has
also taken steps to implement the EU
Directive, “ Copyright and related rights in
the Information Society”, (2001/29/EEC).
It came into force on 31 October 2003, and
updates and harmonises legal protection
for digital rights management systems.
IP crime
4.28. Criminal proceedings can arise where
infringement of IPR raises public interest
issues, such as consumer deception or
safety concerns, or where there is
commercial piracy. The Patent Office has
been working closely with others to
improve actions taken against IP crime, for
example, training on IP for Trading
Standards Officers, and working with the
National Criminal Intelligence Service to
improve the data on levels of crime.
4.29. To step up efforts in this area, we
will, in conjunction with rights holders and
enforcement bodies, develop a new
national strategy for dealing with IP crime,
to be launched by Summer 2004.
In particular this will involve improving the
evidence base, removing administrative
overlap, and setting out agreed priorities.
Standards
4.30. Standards have underpinned
commercial activity and trade for centuries
but they have never been as important as
they are today. Standards range from full
formal standards such as for CD-ROMs11
or safety of machinery in the workplace12
to informal ones e.g. on knowledge
management13 to de facto industry ones
e.g. MS Windows™.
Box 4.6
Mobile gas cylinder standards
Transporting gases safely has long been
an issue with different countries setting
their own requirements on gas pressures
and thicknesses of the container walls.
Working closely with UK industry, a
British Standard was developed using
a design formula that results in thinner
walls, and so lighter weight gas cylinders.
After much research taking account of
advanced manufacturing processes and
new materials, and communication of the
findings outside the UK, a family of
international standards drawing on the
British one was agreed which opens up
global markets for safer and more
efficient cylinders.
4.31. A recent study by DIN14, the German
Institute for Standardisation, estimated that
standards made a very significant
contribution to growth in Germany,
accounting for up to around 1⁄3 – 1 percentage
point of the average annual economic
growth rate.
11 BS 4783-7:1993: Storage, transportation and maintenance
of media for use in data processing and information
storage. Recommendations for optical data disks.
12 BS EN 50144-2-5 Safety of hand-held electric motor
operated tools – circular saws and circular knives.
This is one of over 400 such standards that enable
manufacturers meet the requirements of the Supply of
Machinery (Safety) Regulations (SI 1992/3073) as
amended (SI 1994/2063).
13 (BSI) PAS 2001:2001 Knowledge management.
14 Economic benefits of standardization, published by
DIN (German Institute for Standardization) 2000 ISBN
3-410-14860-4.
INNOVATION REPORT
77
4.32. The Community Innovation Survey
for 1998-2000 found that 60% of UK
businesses engaged in the development of
new products, services or processes,
gained useful information from standards
and regulations, and 12% found those to
be of significant importance. Enterprises
using any form of standard or regulation as
knowledge inputs were more likely to
introduce new products (including services)
or processes than businesses that did not
draw on standards.
4.33. Standards also help innovation by
diffusing technical knowledge. New
information thus reaches a much wider
range of companies, enabling them to
innovate. The standard then becomes a
benchmark in the market on the basis of
which leading companies can launch the
next developments.
4.34. However, the standardisation
infrastructure needs to remain relevant to
business and other stakeholders (including
Government itself as a major purchaser as
well as a regulator) both in terms of the
range of businesses catered for and the
standardisation services offered. This is
particularly true for new or rapidly
developing technologies and, increasingly,
for the service industries15. Value-added
products and services based upon
standards (such as guidance on using
standards) can enable business achieve
greater competitiveness.
4.35. The challenge now is to raise the
performance of the standardisation system
and to adapt it fully to the modern needs
of business, Government and consumers.
This will involve raising understanding and
awareness within the UK of the commercial
and strategic importance of standards,
and increasing the number of businesses
with standards on their strategic agenda.
The recently launched National
15 Other examples are BS 7960: 1999 – Code of practice for
door stewards/supervisors [otherwise known as
bouncers]; and BS 7911: 2003 – Specification for
organisations conducting market research; PD 5000:1999
– code of practice for electronic documents as legally
admissible evidence; BS EN 13816: 2000 – guidelines for
the definition, targeting and measurement of service
quality in public passenger transport.
78
INNOVATION REPORT
Standardisation Strategic Framework
(NSSF)16 has been developed to meet
these challenges.
4.36. We will implement the NSSF,
in conjunction with CBI, BSI and other
partners where appropriate.
Key actions will include:
establishing a Business Forum to develop
and maintain business engagement with
the strategic development of UK
standardisation priorities, by working with
the CBI’s Sectoral Affairs and Enterprise
groups and the UK Trade Associations;
improving the efficiency of the processes
for developing formal standards;
developing value-added products (e.g.
guides) and services, based on
standards, that can help UK business
be more competitive;
developing an action plan to ensure that
standards create a competitive
advantage for small business, working
with BSI’s Small Business Policy
Committee, including accessing
standards and understanding how they
can be applied to SMEs;
establishing an international network of
contacts – equipping commercial staff in
targeted UK embassies and consulates
with the knowledge to identify threats
and opportunities presented by
standards in the markets into which UK
businesses wish to export (please refer
to chapter 7). The output will inform the
national, European and international
standards development strategies,
focusing on reducing technical barriers
to trade in priority markets and countries
for UK business;
developing with BSI an internet based
standards alert service for exporters,
alerting them to potential new markets
that have adopted common standards; and
demonstrating the benefits of standards
to businesses both in terms of product or
service developments and of business
processes.
16 www.nssf.info
Chapter 5
Innovation policies
across Government
INNOVATION REPORT
79
Summary
More innovative approaches can lead to
more effective solutions for Government
as well as business. So Government needs
to “Think Innovation” as it develops and
implements policies and uses its huge
power as a purchaser and provider of
services to improve people’s well being
through better public services.
Recognising the innovation challenge
facing the UK, the Prime Minister has
asked the Secretary of State for Trade and
Industry to chair a Ministerial team to lead
the innovation agenda across Government
and drive forward the implementation of
this report.
The economic analysis accompanying this
report has identified the role played
by demanding customers as one of the
seven critical success factors that contribute
to the UK’s innovation performance.
The public sector, central and local
government combined, purchased £109
billion worth of goods and services in
2001-02. The public sector accounts for an
estimated 55% of all spend in the UK on IT
services and systems, and more than 30%
of all construction spend.
By acting as an intelligent customer and
one open to new approaches, Government
purchasing can provide an incentive for
companies to develop new products,
processes and services. In turn, innovative
products and services can help
Government achieve better value for
money by improving the quality of public
services and reducing whole-life costs.
In order to build on existing initiatives
the Office of Government Commerce
(OGC) will produce best practice
guidance for policy, project and
procurement staff on capturing creativity
from suppliers by March 2004.
Barriers to, and opportunities for, innovation
will differ from one market to another, and
so need to be addressed at market level.
80
INNOVATION REPORT
The DTI, supported by OGC, will be
organising future procurement events to
bring together suppliers and public
sector purchasers in specific markets to
agree some practical measures that can
support innovation through procurement.
All the Innovation and Growth Teams
(IGTs) set up by the DTI will be asked to
identify whether public procurement
could better facilitate innovation and
how this could be achieved.
To support the Government’s efforts to
improve its performance as an
intelligent customer, the DTI will work
across Government to look at the
opportunities for, and barriers to,
innovation in key public sector markets.
We will pilot this approach by working
with NHS Estates to look at how we can
draw innovation through the supply
chain. NHS Estates, through the
ProCure21 initiative, has created the
procurement environment in which the
supply side should be able to deliver
better solutions to its client, but both
suppliers and clients need to develop a
better understanding of the real
potential for innovation to meet current
and future healthcare needs. The
proposed joint DTI and NHS Estates
project will seek to identify this
potential and enable its take-up through
ProCure21.
The DTI, Department of Health (DoH)
and the IGT will work together to
address barriers to greater uptake of
telecare and telemedicine technologies
to help meet the NHS and social services
target of a 50% increase in the number
of people benefiting from community
equipment services by 2004.
While the public sector purchases
significant amounts of research and
development (R&D), it has proved difficult
for small and medium sized enterprises
(SMEs) to get access to research funding.
The Government established the Small
Business Research Initiative (SBRI) in 2001
to tackle this, and set Government
Chapter 5
Innovation policies across Government
Departments the target of purchasing at
least 2.5% of their R&D from SMEs by
2004/05. This was inspired by the
equivalent scheme in the USA, which has
played an important part in encouraging
the growth of small high tech businesses.
To improve the effectiveness of the SBRI
we will strengthen the DTI’s role in
coordinating and monitoring the
programme, extend the collection of
SBRI data across departments, publish
the results on an annual basis, and
investigate how the wider range of R&D
opportunities, arising from, for example,
Regional Development Agencies (RDAs)
and local authorities, could be included
in the scope of SBRI.
The way that the Government designs and
implements regulations can also have an
impact on the ability of businesses to
innovate. In recent years the Government
has established a number of new central
arrangements to ensure that better
regulation principles are applied rigorously.
But the effects of regulation are usually
long term and dynamic. As a result, some
policy makers are ill-equipped to assess the
impact of any particular policy or
regulation on business innovation.
To improve regulatory decision-making
DTI will develop a ‘Think Innovation’
guide for policy-makers, in consultation
with business and other stakeholders,
to provide sound economic and practical
guidance on what to look for when
assessing the unintended consequences
as part of the Regulatory Impact
Assessment process.
There is an important opportunity to
increase innovation through more use of
outcome-based regulation, that is regulation
which defines the policy objectives, not
how they should be achieved. This gives
companies greater scope to innovate to
comply with the regulations using the
most effective technological solutions or
business practices.
To encourage Government Departments
to adopt more outcome-based
regulations we will focus on specific
examples to test how this approach can
be applied in practice. We will start by
examining how environmental regulation
can better promote innovation. A crossGovernment project team led by DTI
including the Environment Agency (EA),
the Department for Environment, Food
and Rural Affairs (Defra), the Department
for Transport (DfT) and the Cabinet
Office will look at three areas
of environmental policy and will focus
on how the regulations are designed or
whether there are alternatives to
regulation. The project team will work
in consultation with business and other
stakeholders.
We will increase DTI resources dedicated
to expanding our knowledge of the
emerging European regulatory agenda
and our influence upon it.
DTI will also work more closely with
the Health and Safety Executive (HSE)
in promoting health and safety
requirements as an enabler of
innovation.
Government spent some £4 billion on
R&D in 2001/02 to meet its own Science,
Engineering and Technology needs,
especially in health and defence. We want
to see more of the research results flow
into the exchange of knowledge between
business and research organisations and
end up in the pool of ideas and inventions
available for commercial exploitation.
The work of the Ministerial innovation
team will include a review of the extent
to which knowledge transfer objectives
are embedded in Departmental Science
and Innovation Strategies.
INNOVATION REPORT
81
Promoting innovation
across Government
5.1. The Government needs to “Think
Innovation” because what is true for
business is true for Government: more
innovative approaches can lead to more
effective solutions. Government has an
impact on society, not only through its
policies, but also through its direct
activities.
5.2. This chapter focuses particularly on the
potential impact that Government can have
on innovation through three key activities:
Government’s role as a customer – the
public sector purchased £109 billion
worth of goods and services in 2001-02;
Government’s role as a regulator – the
way it designs and implements health,
safety, product and environmental
regulations; and
Government’s role as a source of new
knowledge – in the research and
development that it carries out, and its
exploitation for wealth creation.
5.3. However there are other areas in which
Government needs to take action in order
for the UK to make the increase in its
innovation performance necessary to
achieve productivity levels as high as those
of our competitors.
5.4. For example we outlined in Chapter 3
our plans for a Technology Strategy in
order to identify the most important
emerging and potentially disruptive
technologies on the basis of their potential
economic, social and environmental
benefits for the UK. Government has a role
to play in adopting and promoting the use
of new technologies in order to deliver its
own policy objectives, for example, putting
in place an appropriate infrastructure,
the delivery of healthcare and learning,
and in defence.
82
INNOVATION REPORT
Box 5.1
Innovative delivery of Government
services: the internet
The Office of the e-Envoy is part of the
Prime Minister’s Delivery and Reform
team based in the Cabinet Office. It was
set up in September 1999 in response to
the Performance and Innovation Unit’s
report, “[email protected]” and is
headed by the e-Envoy, Andrew Pinder,
who was appointed in January 2001.
The primary focus of the Office of the
e-Envoy is to improve the delivery of
public services and achieve long term
cost savings by joining-up online
Government services around the needs
of customers.
The e-Envoy is responsible for ensuring
that all Government services are available
electronically by 2005 with key services
achieving high levels of use. The
Government has also set a deadline of
2005 for local government to become
completely capable of providing electronic
services. As a result there is a strong
incentive for the businesses that supply
them – many of which are SMEs – to adopt
e-procurement systems. Business
investment in integrated Information and
Communication Technologies (ICT)
reduces costs, increases productivity and
stimulates new product development,
whilst local authorities will benefit from
innovative, tailored solutions at lower cost.
The e-Envoy also works to meet the
Prime Minister’s target for internet access
for all who want it by 2005 and supports
work across Government to develop the
UK as a world leader for electronic
business. Latest figures published by the
Office of National Statistics show that
internet access in the UK continues to
grow. 56% of the population are now
regular users of the internet and 48% of
all households have internet access –
five times the number of homes
connected in 1998.
Chapter 5
Innovation policies across Government
5.5. We also need to ensure that Government
strives to achieve the managerial culture
recommended in Chapter 2, so that our
senior managers are adept at managing
knowledge, have a good understanding of
entrepreneurial activity, and work in a
framework in which they can take managed
risks. We must lead by example in
developing the skills of the public sector
workforce to be able to innovate and
increase productivity – a significant aim
of the cross-Government Skills Strategy.
5.6. In addition, because Government’s
partnerships with industry are vested in a
wide range of departments, many
Government Departments have a role to
play in driving up the level of innovation in
the sectors which they partner (Table 5.1).
Through sector sponsorship, a Government
Department acts as a bridge between the
industry and Government as a whole.
Such sponsorship alerts Government to
industry concerns and opportunities,
and also explains the Government agenda
to business.
5.7. Recognising the innovation challenge
facing the UK, the Prime Minister has
asked the Secretary of State for Trade and
Industry to chair a Ministerial team to lead
the innovation agenda across Government
and drive forward the implementation of
this report.
Government’s role as a customer
5.8. The economic analysis accompanying
this report1 has identified the role played
by demanding customers as one of the
seven critical success factors that
contribute to the UK’s innovation
performance. The public sector (central
and local Government combined)
purchased £109 billion worth of goods and
services in 2001-022. For some sectors of
UK industry, the Government is the single
most significant customer in the country.
For example, the public sector accounts
for an estimated 55% of all spend in the
UK on IT services and systems, and more
than 30% of all construction spend
(excluding Private Finance Initiatives)3.
Other sectors for which the Government
is a major customer include defence
equipment, educational supplies,
healthcare supplies and services, as well
as custodial and associated services.
5.9. By acting as an intelligent customer
and one open to new approaches,
Government can require suppliers to
compete on the basis of criteria that
emphasise the innovative features of
goods or services. If Government acts as
an ‘early adopter’ by contracting for
products and services in sufficient volume,
it can give industry enough of a market to
justify investment in new skills, equipment
or R&D. Hence a Government contract
could strengthen a company’s long-term
innovative capability and competitiveness
in other markets. In turn, innovative
products and services help Government
achieve better value for money, i.e. the
best balance of product or service
performance, quality and whole life cost
to meet the user requirement.
1 DTI Economics Paper No. 7, publication 17 November
2003.
2 Public Expenditure Statistical Analyses, HM Treasury and
Office of National Statistics, May 2003. http://www.hmtreasury.gov.uk/documents/public_spending_and_services/
public_spending_data/pss_pss_pesaindex.cfm
3 The Construction Statistics Annual 2003.
http://www.dti.gov.uk/construction/stats/constat2003.pdf
INNOVATION REPORT
83
Table 5.1
Government Department responsibilities for promoting the
competitiveness of different sectors of the economy include:
Government Department4
Sponsored industries
Department of Culture,
Media and Sport
Alcohol and entertainment
Architecture and design
Arts
Broadcasting industries, including film and music
Cultural property
Gambling and racing
Historic environment
Libraries and Communities
Museums and Galleries
National Lottery
Sport
Tourism
Department for the
Environment, Food
and Rural Affairs (Defra)
Agriculture
Food & Drink
Water industry
Fisheries
Horticulture
Horse industry
Defra/DTI (jointly)
Environmental Goods & Services
Department of Health
Pharmaceuticals, Medical devices & systems
Department for Transport
Bus & coach industry, light rail, trams, guided bus,
taxis and private hire vehicles (services)
Transport for London (services)
Air services
Airports
Shipping
Ports
Railways
Freight and logistics
Department of Trade
and Industry
Aerospace & Defence
Automotive
Bioscience
Chemicals
Communications Networks
Construction
Consumer Goods & Services
E-business
Electronics
Energy
Marine
Materials & Engineering
Publishing & digital content (including computer
games and graphic design)
Security & Fire protection equipment
Software & Computer services
Department for
Education and Skills
Education and Skills services, (including Schools,
Youth and Lifelong Learning)
4 Devolved Administrations also have sponsorship responsibilities.
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Chapter 5
Innovation policies across Government
Box 5.2
Defence Industrial Policy
The Government launched its Defence
Industrial Policy in October 2002.
This policy is aimed at enhancing the
competitiveness and sustainability of the
UK defence industry, while continuing to
provide high quality equipment to the
UK Armed Forces at best long-term value
for money. In seeking to maximise the
UK economic benefits of our spend on
defence equipment it requires that wider
factors, including industrial benefits, are
fully considered in the UK’s defence
capability procurement. The policy also
helps underline DTI’s commitment to a
UK-based manufacturing industry able to
design and build the latest generation of
advanced defence equipment.
In the light of this new policy, DTI engaged
fully in the Government’s decision to
purchase BAE SYSTEMS next-generation
Hawk 128 advanced jet trainer. An analysis
of wider factors in this procurement,
notably an export market worth potentially
more than £2 billion, its importance to the
regional economy in East Yorkshire, and
the contribution of UK sub-system
suppliers, notably on engines, systems
and high-value manufactured components,
contributed to this decision. BAE SYSTEMS
were able to convince the Government
that the latest generation of Hawk, which
will be fitted with an open system
architecture and state-of-the-art avionics,
would satisfy MoDs demanding
requirement to train pilots for emerging
front line fast jet aircraft such as the
Eurofighter Typhoon and the US/UK Joint
Strike Fighter. The Defence Industrial
Policy commits the Government to
become more innovative in its major
defence equipment procurements.
By fully considering wider factors at the
outset of the procurement strategy before
companies have committed millions to
bids, and being more transparent with
bidders on how we analyse wider factors,
the procurement strategies derived
should establish outcomes that are
broadly acceptable to all stakeholders.
Box 5.3
Innovative traffic management systems
Delivering clearer and faster information to
drivers is vital to increasing safety as well
as reducing congestion on our road and
rail transport networks. Variable colours,
graphics and enhanced lighting are being
built into the design of more intelligent
traffic management systems.
Hence additional and more effective Light
Emitting Diode (LED) light sources will be
needed in any given area.
VMS Ltd of Gateshead, winners of the
Queen’s Award for Enterprise in 2002
developed a new reflector design that
captures 90% of the light emitted from LEDs
– a fourfold increase in efficiency. The new
design reduces the number of LEDs
needed, allowing more information to be
displayed and refreshed 70 times faster.
To gain board approval for such a
major R&D investment in new product
development, the company had to
demonstrate its market potential.
The company’s largest customer is the
Highways Agency, which imposes criteria
based on value for money in awarding
long-term framework contracts. Meeting
the criteria set by such a large customer
persuaded the board that the investment
was justified and led to contracts with
the Highways Agency worth £25m and
exports in the order of £6m.
INNOVATION REPORT
85
CURRENT POSITION
5.10. In researching the difficulties of
capturing creativity from suppliers, the
Office of Government Commerce (OGC)
identified a number of barriers to securing
the most innovative solutions to
Government contracts:
some businesses feel that the
Government is not good at
communicating its longer-term plans
to the market. As a result, some of
the more creative firms are unwilling
to orient their long-term investment
strategy to the objective of securing
Government contracts;
companies are concerned that
insufficient notice of demand and
inadequate attention to their lead times
make it hard to develop and deliver
innovative products or services;
the perception that public sector buyers
are risk averse may deter potential
suppliers from bringing forward
innovative proposals if they anticipate
rejection in favour of lower cost
solutions. There are also concerns about
possible loss of Intellectual Property; and
potential suppliers can also be
discouraged by the time it takes to bid
for major Government contracts, not to
mention the cost and bureaucracy
associated with the process. These
conditions have a disproportionate
impact on Small and Medium-sized
Enterprises (SMEs).
A STRATEGIC APPROACH
TO PUBLIC PROCUREMENT
5.11. The Government is taking steps to
improve access and reduce costs and
bureaucracy for suppliers5. But there is more
we can do to create a better understanding
between the public and private sector
about the Government’s longer-term,
5 http://www.brtf.gov.uk/taskforce/reports/entrypages/
smeprocurement.html and http://www.cabinetoffice.gov.uk/ regulation
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INNOVATION REPORT
strategic needs and the demands they place
on the market, and to develop a
procurement culture that recognises the
potential for innovative solutions to deliver
value for money. Better planning of
Government procurement would help to
address some of the issues highlighted
above by giving potential suppliers greater
scope for capacity planning.
Box 5.4
Public sector broadband requirements
DTI, in partnership with the RDAs, is
setting up bodies in each of the English
regions to take charge of buying
broadband services for regional public
sector customers. The new Regional
Aggregation Bodies will be fully
operational from January 2004.
The Department for Education and Skills
(DfES) and the NHS are their first
customers, wiring up schools, hospitals
and GP’s surgeries. See box 5.6 for more
details of how broadband will contribute
to better delivery of care and services in
the NHS.
Joining up broadband requirements at
a regional level prevents duplication of
effort and presents a clear business case
for service providers to consider. This is
bound to raise investment in broadband
infrastructure and extend availability into
new areas.
Broadband represents a fundamental
infrastructure for private and public
sectors alike. It will allow them to develop
innovative ways of transforming business
processes and delivering services.
5.12. In the Autumn 2002 Pre-Budget Report
the Chancellor asked OGC to examine what
further steps could be taken to increase
competition and long term capacity
planning in markets where Government
has significant purchasing power. Ministers
have now accepted the OGC report and an
Chapter 5
Innovation policies across Government
action plan has been published as part of
this year’s Pre-Budget Report. This action
plan will deliver real progress on the issues
identified by business, in particular the
challenges of increasing transparency of
public sector demand to enable long term
planning and increasing the professionalism
of public sector purchasing staff.
5.13. DTI has organised future procurement
events for specific public sector markets.
OGC will support these events where
appropriate. These will enable discussion
of the practical measures being taken to
support innovation in procurement. DTI
will also ask its industry-led IGTs to
identify whether public procurement could
better facilitate innovation and how this
could be achieved. For example, as part of
following up the work of the Environmental
IGT, we have set up a group to identify
opportunities for using public sector
procurement to stimulate innovation in the
environmental industries.
EMBEDDING BEST PRACTICE
IN PROCUREMENT
5.14. Many best-practice procurement
techniques can actively stimulate suppliers
and promote innovation:
early supplier involvement allows
designers and suppliers to apply their
creativity from the outset rather than
being faced with a rigid pre-conceived
approach;
partnering stimulates trust and shared
objectives which can lead to innovative
solutions;
the use of output or outcome based
specifications for example, when they
can make intelligent use of standard
rather than bespoke specifications,
suppliers are able to innovate in
developing alternative solutions; and
Box 5.5
Attitudes to innovative ideas
In conjunction with defence-related trade
associations, the Ministry of Defence
(MoD) has drawn up a Code of Practice to
encourage unsolicited innovative
proposals. The Code:
provides a clear point of contact within
MoD to whom the proposal should be
addressed;
sets out MoD’s internal handling
procedure, including the timescales for
providing a response;
explains the key components an
innovative proposal should contain;
and
is published on the MoD website.
The Code is backed up by an internal
policy, mandating staff compliance with
the Code. An up-to-date database of
innovative proposals contains details of
each proposal’s status and the technical
expert to whom it had been assigned.
5.15. The public sector is already working
hard to bring best practice in procurement
across the public sector up to the highest
standard. For example, central Government
Departments are now required to introduce
Centres of Excellence for project
management, and procurement and project
practitioners are using the OGC’s
Successful Delivery Toolkit. The Office of
the Deputy Prime Minister (ODPM)
launched the National Strategy for Local
Government Procurement in October 2003.
good management of the tendering
process can ensure contractors have
sufficient time and opportunity to
develop innovative proposals.
INNOVATION REPORT
87
Box 5.6
NHS Information Authority Innovation Centre – an emerging opportunity
The National Programme for Information
Technology (IT) in the NHS focuses on the
key developments that will make a
significant difference to improving the
patient experience and the delivery of care
and services. There are four key
deliverables: electronic appointment
booking, an electronic care records service,
electronic transmission of prescriptions
and an underpinning IT infrastructure.
Broadband services will be brought via the
Regional Aggregation Bodies (see Box 5.4).
The Government investment in the NHS
National Programme for IT and the
establishment of the Regional Aggregation
Bodies will act as a catalyst for innovation,
which will contribute to ongoing
modernisation of the NHS. In many ways
the local context – in local hospitals, GP
surgeries and communities – is where
much of the untapped potential for
innovation exists in the NHS.
Recognising this potential, and the need
to develop national enduring information
services that support innovative ways of
delivering healthcare, the NHS
Information Authority has been working
closely with a wide range of key
stakeholders – including the DTI, the NHS
Modernisation Agency, industry, the
Broadband Stakeholder Group,
universities, NHS staff and patients – to
develop an operational plan for a new
Innovation Centre. If agreed, the
Innovation Centre would support and
work with current and future local NHS
‘Innovation Hubs’ to create a Healthcare
Innovation Network that will identify local
innovations and develop them into a
national platform quickly and efficiently
for the benefit of the whole of the NHS.
The focus would be on new ways of
delivering healthcare and the associated
information requirements to support
decision-making by clinicians and patients.
5.16. There are many examples of good
practice from which we should draw out
lessons learnt and adopt them across the
public sector. For example, the ‘Achieving
Excellence in Construction’ initiative,
launched in 1999 and managed by OGC,
set challenging targets for Government
Departments to become best practice
clients through the use of integrated
procurement routes and performancebased, incentivised contracts.
completion time; higher building design
quality; and value for money over the
whole life of a facility.
5.17. NHS Estates has embraced these
principles fully and has developed them
further with the introduction of the ProCure
21 partnering framework. NHS ProCure 21
uses a standardised approach to the
procurement of healthcare facilities which
is based upon long-term relationships with
supply chains to deliver tangible benefits to
both sides: certainty of building cost and
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INNOVATION REPORT
5.18. Increasing environmental concerns
also act as a stimulus for innovation.
The scope for using Government purchasing
to help deliver sustainable development
objectives is greatly under-utilised at
present and a much more ambitious
approach is needed. There is now a greater
cross-Government focus on procuring
innovative solutions to, for example,
reducing waste and improving energy
efficiency. New action in this area was
announced in October 2003 in response to
the report of the cross-Government
Sustainable Procurement Group6. We will
continue to build on these foundations.
6 http://www.sustainable-development.gov.uk/sdig//
improving/partf/report03/index.html
Chapter 5
Innovation policies across Government
Box 5.7
Kit for Purpose project
Focusing on education, and the £1 billion
annual spending on learning resources,
furniture and equipment, the Design
Council initiative Kit for Purpose, backed
by the DfES, is working with selected
schools in England to create new
procurement models allowing them to
buy what they need to fulfil their learning
goals, not just make stop-gap purchases
to replace broken and damaged
equipment. The learning from this threeyear project will be made available to
other schools, allowing them to secure
better value for money.
Based on in-depth work with teachers,
pupils and administrators to examine
attitudes to learning environments and
issues related to equipping them, Kit for
Purpose has already led to the creation,
through the project’s Furniture for the
Future competition, of new school
furniture designed to have a positive
impact on learning and attainment.
Designers and manufacturers were
challenged to join forces and produce
innovative, yet affordable concepts – and
two of the winning designs (unveiled in
February 2003) have been ordered by
schools.
The Orbital Workstation, a radical
reworking of the traditional classroom
chair and table, featuring a swivel seat
that orbits round an adjustable table, has
been so well received in school trials that
the manufacturer Keen Group Ltd, is
intending to export it to the US, Japan,
Scandinavia and Europe.
5.19. In order to build on existing
initiatives OGC will produce best practice
guidance for policy, project and
procurement staff on capturing creativity
from suppliers by March 2004. An ongoing
review of existing guidance will be taken
forward in tandem. The new and amended
guidance will be fed into relevant training
and development programmes.
5.20. Cross-cutting activity of this sort
needs to be complemented by targeted
action in key public sector markets.
Barriers to, and opportunities for,
innovation will differ from one market to
another, and so need to be addressed
at market level. We will start by looking in
two sectors: construction; and telecare and
telemedicine technologies.
5.21. DTI will work with NHS Estates to
see how, taking advantage of the
improvements in construction
procurement and delivery process that
ProCure21 will deliver (for example the use
of integrated construction teams), we can
achieve a step change in the delivery of
healthcare facilities that meet the needs
of staff, patients and visitors and enable
flexibility in decisions on capacity and use
of these facilities in the future. This project
will draw from expert knowledge in the
supply side to identify how best to release
the innovation in the supply chain. We
will be looking to identify the scope for
innovations such as standardisation of
products and design which can drive out
waste in the development and delivery
of solutions for the NHS and development
of products and materials that better meet
NHS business needs in ensuring patient
and staff well-being.
5.22. Telecare and telemedicine products –
such as movement sensors, fall alarms and
implants, and the systems that enable
remote monitoring of symptoms – will play
a vital role in helping people maintain their
health and independence whilst relieving
pressure on hospital and residential care.
The NHS and social services have a target
INNOVATION REPORT
89
to increase by 50% the number of people
benefiting from community equipment
services (which include these technologies)
by 2004. To help meet this target DTI, the
Department of Health (DoH) and the
Electronics IGT will work together to
address barriers to greater uptake of
telecare and telemedicine technologies.
Public sector contracts for R&D:
the Small Business Research
Initiative (SBRI)
5.23. While the public sector purchases
significant amounts of R&D, it has proved
difficult for SMEs to get access to research
funding.
5.24. There may be a number of reasons
for this, including:
the cost and bureaucracy of the
tendering process (as for other
Government contracts);
some SMEs are start-ups and as such
often fail to meet financial tests for
potential contractors;
the number of contracts is low relative to
the number of potential bidders;
some Government R&D requirements
(principally those of the Research
Councils) have previously been let
primarily to universities; and
there may be resistance to dealing with
unknown companies.
5.25. The Government established the
Small Business Research Initiative (SBRI)
in 2001 in order to increase the success
of smaller businesses in obtaining
contracts from government bodies to
conduct research and development.
The Government Departments involved
have a target of purchasing at least 2.5%
of their R&D from SMEs by 2004/5.
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INNOVATION REPORT
5.26. The SBRI aims to increase the size of
the market available to small firms whose
businesses are based upon providing R&D,
as well as to encourage other SMEs to
increase their R&D capabilities, and to
create opportunities for new knowledgebased start-up companies. The SBRI is
complemented by other forms of support,
for developing the research capability of
SMEs, such as the DTI’s R&D Grant.
5.27. Some progress has been made, with
DEFRA, the DoH, and the Engineering and
Physical Sciences Research Council
(EPSRC) already meeting or exceeding the
2.5% target. Over 230 companies have
registered with the SBRI web site
(www.sbri.org.uk) and received information
about contracts suited to their capabilities.
5.28. But it is clear that we need to do
more. The Government is determined to
fulfil its objective and we will improve the
effectiveness of the SBRI by:
strengthening the co-ordination and
monitoring of the programme;
providing an on-line tender alert service
possibly via the Business Link website
(www.businesslink.gov.uk), and
providing data on levels of interest
and conversion rate;
re-engaging with all the participating
departments and other public sector
organisations to ensure full support for
SBRI’s aims; the SBS will actively
promote the scheme with other
Government Departments;
extending the collection of SBRI data
across departments and publishing the
results on an annual basis;
working with departments to identify
packages of work for which SMEs could
bid; and
investigating how the wider range of
R&D opportunities – e.g. those arising
from RDAs and local authorities – could
be included within the scope of SBRI.
Chapter 5
Innovation policies across Government
Government’s role
as a regulator
WHY REGULATION MATTERS
FOR INNOVATION
5.29. Regulation has a marked impact
on ways and costs of doing business.
The timing for implementing regulations,
the specific nature of the rules as well as
the type of industry involved all affect
incentives to introduce new products or
services. In this section of the report we
focus on areas of regulation where there is
a clear dynamic between a firm’s
processes, products and services and the
regulatory environment. This is particularly
the case in environmental, health and
safety and product regulations.
Box 5.8
Regulation of embryo research
An example of regulations that enhance
the opportunities for innovation is the
legislation on embryo research, which
has evolved over 20 years of public and
Parliamentary debate. Following
extensive consultation with the public,
business, the research base and many
other stakeholders, the UK has reached a
national consensus on this issue and has
devised a framework which sets out a
rigorous and effective licensing system in
which this research can take place. This is
regulated by the Human Fertilisation and
Embryology Authority. This clear
regulatory framework gives the UK an
advantage over many other countries in
which the debate is still underway, and
has enabled the UK research base to
carry out world-class research at the
frontiers of scientific discovery.
5.30. By focusing on the desired outcome
of regulations rather than prescribing in
detail how things should be done, we can
do more to reduce any constraints on
innovation that regulation can introduce.
Businesses themselves should have a say
in how best to comply with regulations.
An outcome-based approach to regulation
offers businesses the opportunity to work
with Government in designing regulations
and their means of implementation that
could provide more cost effective solutions
for both the private and public sectors.
BETTER REGULATION PROCESSES –
THINK INNOVATION
5.31. In recent years the Government has
established several new central
arrangements to apply rigorously better
regulation principles. For instance, the
Better Regulation Task Force (BRTF),
established in 1997, serves as an
independent advisory group to
Government; the Panel for Regulatory
Accountability (1999) takes an overall
view of regulatory implications of
the Government’s regulatory plans; the
Regulatory Reform Ministers have been
appointed in each Government
Department; and the Regulatory Reform
Act of April 2001 is a new tool to make it
easier for Government to amend
burdensome primary legislation.
5.32. It is hard to quantify the effects of
regulation on innovation because they are
usually long-term and dynamic. We would
like to encourage policy makers to take
account of the possible effects of their
proposals on businesses, so that options
that provide businesses with greater
flexibility are developed and considered as
alternatives to more prescriptive regulatory
frameworks. Greater awareness, better
guidance and higher quality interaction
with business could reduce negative
regulatory impacts on innovation.
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91
5.33. To improve regulatory decisionmaking the DTI will develop a ‘Think
Innovation’ guide for policy-makers to
provide sound economic and practical
guidance on what to look for when
assessing the unintended consequences as
part of the Regulatory Impact Assessment
process.
OUTCOME-BASED REGULATION
5.34. Outcome-based regulation defines the
policy objectives, not how they should be
achieved. Business faces the responsibility
– and has the choice – about how to
comply; it also has the freedom to explore
new ways of meeting regulatory demands.
5.35. There are good examples of outcomebased regulation to build on both at the
European and national levels. However,
the approach still tends to be the
exception rather than the norm. In the
are a of product safety regulation, the EU’s
New Approach has created an outcomebased framework. The fundamental
principle of the New Approach is to confine
legislative intervention to a set of
“Essential Requirements” that are of public
interest. The technical detailed
specifications are delegated to standard
setting organisations. Maximum flexibility
is given to manufacturers over the choice
of technical solutions they use to meet the
requirements.
Box 5.9
Outcome-based regulation
A good example of outcome-based
regulation is the Contaminated Land
Regime, introduced in England in April
2000. The regime does not necessarily
involve formal enforcement or specify
remediation actions. The regulator can
secure remediation of a contaminated
site through mutual agreement with
those responsible on what actions are
required to meet the remediation
standard. These actions are identified
within a framework of guidance and take
account of a range of considerations
including site-specific circumstances.
In practice this means it is open to the
“problem holder” or contractor to
propose how to deal with the site, and
have the proposals recognised by the
regulator and carried out in the agreed
manner. This allows any number of
different approaches to be used including
some innovative remediation techniques
such as:
landfarming, windrows and biopiling –
controlled processes that use aerobic
microbial action to degrade organic
contaminants from soil;
phyto-remediation – using plants to
take metals out of the soil;
reactive barriers – such as filtering
through clay particles;
addition of oxygen or hydrogen
generating compounds;
solidification stabilisation – the use
of compounds to encapsulate
and immobilise contaminants; and
air sparging – technology that reduces
concentrations of volatile constituents
in petroleum products that are
absorbed to soils and dissolved in
groundwater.
As a result the UK is one of the world
leaders in this area of research and
development.
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Chapter 5
Innovation policies across Government
5.36. Applied initially to product safety
regulation, the New Approach now extends
to other areas of product regulation, such
as electromagnetic compatibility and
certain noise and engine emission limits.
We can learn from and adapt the principles
of the New Approach and explore how the
outcome-based approach could be applied
to more areas of environmental regulation
and in other sectors such as services.
5.37. We will start by examining how
environmental regulations can be designed
and implemented to secure the desired
environmental outcomes in a way that
does more to promote innovation and
business opportunities. A project team,
led by DTI in partnership with the
Department of the Environment, Food and
Rural Affairs (Defra), the Cabinet Office,
Department for Transport (DfT) and the
Environment Agency (EA), working in
consultation with business and other
stakeholders, including Non-Governmental
Organisations (NGOs), will start by looking
at three areas: implementation of the
Integrated Pollution Prevention and Control
(IPPC) Directive; eco-design of products;
and vehicle emission regulations.
the IPPC Directive regulates the
emissions from a wide range of
industrial installations in the EU through
integrated prevention or minimisation of
air, water and soil pollution, with a view
to achieving a high level of protection for
the environment as a whole. A key
feature of the Directive is its requirement
that permit conditions for each
installation must be based upon the
application of best available techniques
(BAT) – a concept that by definition
encourages innovative approaches to
cost-effective pollution control. IPPC is
being implemented sector by sector, and
will eventually apply to some 7000
installations in the UK. The project team
will identify best practice from work with
those sectors for which the Directive has
already been implemented and apply
this to the way in which the Directive is
implemented in further sectors;
the eco-design of products so as to
minimise their impact on the
environment over the whole life-cycle
of production, use and disposal is vital
to delivering savings in energy use
and carbon dioxide (CO2) emissions and
promote better resource use and higher
levels of recycling. This presents both
challenges and opportunities for
manufacturers. Here we will examine
how different policy instruments,
including alternatives to regulation such
as voluntary codes, can deliver outcomes
in a way which maximises the scope
for innovation;
vehicle emissions are dealt with by both
regulatory and non-regulatory regimes
with required EU emissions standards
for air quality, and voluntary agreements
on new car CO2 emissions. The impacts
of these different approaches on
innovation will be assessed, looking
forward to new, more stringent standards
likely in future and technological
developments already in the pipeline; and
the project team will complete its work
by summer 2004.
5.38. We will also increase DTI resources
dedicated to expanding our knowledge of
the emerging European regulatory agenda
and our influence upon it. Engagement on
policy ideas in the EU at the earliest stages
is critical. We shall step up our work across
Government and with business stakeholders
to track EU policy development and to
engage strategically with the European
Commission and Parliament. These
institutions are now committed to the
application of Better Regulation disciplines,
with impact assessments for all proposals
and the Competitiveness Council of
Ministers has a new and clear remit to
ensure EU regulation takes proper account
of competitiveness impacts. In addition,
we will review the New Approach to see
where improvements could be made and
will use the changes taking place in Europe
to push for the wider application of
outcome-based principles.
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93
5.39. Health and safety is another area
where, in some circumstances, regulation
can have a positive impact on innovation
and business performance and where the
need to control risks in a cost effective
manner has led to major innovations in
the form of new systems and technologies.
Enterprising approaches to controlling risk,
including safety risks, are net drivers of
innovation. The advice and help of the
Health and Safety Executive (HSE), within
a structure of minimum legal requirements,
can assist firms to both improve health
and safety and secure bottom line benefits
(see box 5.10).
5.40. An effective regulatory regime also
helps provide public reassurance and
acceptability of new technologies and
processes. DTI and HSE have a mutual
interest in emerging technologies and new
types of business or market opportunities.
Box 5.10
Examples of innovation in health and safety
The safety of vehicle airbags
The main safety concerns related to the
introduction of explosive devices into work
environments unfamiliar with such articles,
e.g. car plants, garages and scrap yards.
Their supply, conveyance and storage
raised issues of compliance with
explosives legislation. HSE worked with
Honda and Vauxhall to identify the safest
way to handle and store airbags on the
assembly lines, and how best to package
them so that they could be classified as
non-hazardous for transport.
The work resulted in innovative methods of
packing and storage, which limited the
restrictions on normal manufacturing
practices and imposed no undue burdens
on industry in terms of new plant and
equipment. They were shared with the rest
of the industry through the Society for
Motor Vehicle Manufacturers and Traders
and the Motor Industry Research
Association. HSE also worked with the
Vehicle Builders and Repairers Association
in identifying safe procedures for the
disposal of these devices. HSE has
published guidance based on the work.
The Hydrogen Economy
HSE is playing a key role in researching
new technologies, promoting innovation
and providing expert guidance on best
94
INNOVATION REPORT
practice. Many of the organisations
developing “hydrogen economy”
technologies are SMEs, frequently
without access to specialist advice on the
special hazards of hydrogen. HSE has
been actively involved in many of the
groundbreaking demonstration projects
that are in progress across the UK.
Official guidance has been aimed
specifically at helping industry to
understand the hazards of hydrogen and
how the risks can be minimised.
This document received widespread
acclaim during the consultation phase
and will be published.
HSE is also involved in leading edge
research into aspects of “hydrogen
economy” technologies fundamental to
health and safety. NaturalHy, a major EU
funded pan-European project with over
50 participating organisations, is looking
at the possible use of existing natural gas
pipes to transport safely mixtures of
hydrogen and natural gas. Several large
energy companies, the US Department
of Energy and HSE are researching how
the risks from retail of hydrogen
dispensing can be minimised. The results
of this work will be fundamental to the
design of the first generation of roadside
hydrogen filling stations.
Chapter 5
Innovation policies across Government
5.41. DTI will therefore work more closely
with HSE to identify developing areas of
technology and new business activities,
and in promoting health and safety as an
enabler of innovation.
Government’s role as a
source of new knowledge
5.42. Government invests an immense
amount in R&D both in the Science,
Engineering and Technology base (SET
base) and for its own needs, especially in
health and defence. We want to see more
of the research results flow into the
exchange of knowledge between business
and research and technology organizations
and into the pool of ideas and inventions
available for commercial exploitation.
5.43. Government spent some £7 billion
on R&D in 2001/02 and this is expected to
increase to nearly £9 billion by 2004/057.
Less than half of this expenditure funds
the SET base through OST and the Higher
and Further Education Funding Councils
(HEFC). Most of the remainder is research
and development designed to meet the
specific needs of Government Departments
in areas such as defence and health8.
5.44. As demonstrated in Chapter 3,
Research Councils, HEFC and universities
have been increasing their efforts to
improve the exchange of knowledge
between universities and businesses, whilst
maintaining the primary purpose of
funding university research. However,
much less attention has been given to
making fuller use of Government R&D in
terms of the wider economic goals of
knowledge transfer and commercial
exploitation, again without diluting the
R&D missions of individual Government
Departments.
7 The Forward Look 2003 – Government funded Science,
Engineering & Technology.
http://www.ost.gov.uk/research/forwardlook03/
8 Estimates also include an amount to cover the notional
UK contribution to EU R&D budgets (estimated to be
some £400m in 2001/02).
5.45. In recent years two initiatives have
gone some way towards strengthening
knowledge transfer and exploitation:
the “wider markets” policy (introduced in
1998 and revised in 2002)9 and
recommendations arising out of the
Baker Report (1999)10. Both initiatives
aim to bring research in the Public
Sector Research Establishment sector
(PSRE, eg. Research Councils, Government
Laboratories, and the NHS Trusts) into the
commercial arena.11
5.46. The Public Sector Research
Exploitation Fund was established in
response to the Baker Report to help
realise the economic potential of PSREs.
Awards worth £10m were made in October
2001 (involving some 15 institutions and
10 lead NHS Trusts). £15m for a second
round of the Public Sector Research
Exploitation Fund was provided in the
Spending Review 2002.
9 ‘Selling Government services into wider markets’,
policy guidance note, HM Treasury, July 1998
http://www.hm-treasury.gov.uk/mediastore/otherfiles
/sgswm.pdf; ‘Selling into wider markets: a policy note for
public bodies’, HM Treasury, December 2002,
http://www.partnershipsuk.org.uk/widermarkets/Guidance/
2003_1.pdf
10 ‘Creating knowledge creating wealth – realising the
economic potential of public sector research
establishments’, a report by John Baker to the Minister
for Science and the Financial Secretary to the Treasury,
August 1999.
http://archives.treasury.gov.uk/docs/1999/baker.html
11 ‘Delivering the Commercialisation of Public Sector
Science’, report by National Audit Office,
www.nao.gov.uk/pn/01-02/0102580.html
INNOVATION REPORT
95
Box 5.11
How the Defence Diversification Agency helps business access defence technology
96
The Defence Diversification Agency (DDA),
part of the MoD, was set up in 1999 to
promote cross-fertilisation of technology
between defence and industry. The DDA
provides companies with access to the
UK’s world-leading defence science and
technology (S&T) base, a major repository
of technical knowledge and expertise that
can help them innovate and grow.
Additionally, the DDA brings innovative
technology developed within civil industry
to the attention of the MoD. Four years on,
this Government initiative can point to an
impressive track record.
This unique demand-led approach – first
find the business problem then match
the, largely off-the-shelf, solution to it –
has already proved highly successful and
benefited some 2,300 companies.
The DDA has established a highly effective
network of experienced technology transfer
professionals throughout the UK, operating
at regional level. They stimulate the
demand for technology by helping
businesses identify growth opportunities
that can be fulfilled through access to
knowledge, resource and facilities from
within the defence S&T base.
development and testing of novel
polymers for use in building products.
5.47. The 2002 Cross-Cutting Review of
Science and Research set out practical
recommendations to ensure that the
research which Government Departments
commission in support of policy making
and delivery is on a sound footing – and in
line with the Guidelines on Scientific
Advice and Policy Making. The report also
recommended that departments ensure
that knowledge transfer objectives are
included in their Science and Innovation
strategies, that the action points arising
from the Baker agenda are addressed, and
that the PSREs, which departments are
responsible, have frameworks in place for
the commercial exploitation of their work.
These plans need to be completed as part
of the 2004 Government Spending Review
(SR2004). This is something that the new
Ministerial Committee will be monitoring
closely. Departments will work to remove
those barriers to exploitation that lie within
their own control, within the bounds of
commercial and other factors which can
restrict demand for the results of
Government research in the private sector.
INNOVATION REPORT
Examples of technology transfer carried
out by the DDA include:
application of advanced optics from
within the stealth domain to improve
paint curing on pencils;
joint defence/industry development
of a non-contact sensor for remote
analysis of contaminants; and
The DDA network operation and its
proven technology transfer methodology
are applicable to other research institutes.
Pilot projects have been agreed with
Partnerships UK and with PA Technology
to explore these wider opportunities.
Chapter 6
Regional innovation
INNOVATION REPORT
97
Summary
The Government is committed to
increasing the prosperity of all regions
while narrowing inter- and intra-regional
disparities. The Devolved Administrations
(DAs) have all published innovation
strategies or economic strategies which
include innovation. The Regional
Development Agencies (RDAs) in England
have also put an increasing focus on
innovation. They have used the Regional
Innovation Fund set up in 2001 to initiate a
total of 91 incubator and science/business
park development projects, and in 2002/03
have committed more than £250m of their
funds over a number of years to science
and innovation projects.
It is essential that there is a clear
understanding on the respective
responsibilities of Central Government
and the RDAs. It is also necessary that
the RDAs have the expertise and sources
of advice to develop and implement the
innovation elements of their regional
economic strategies.
implementing this Report, the
Department for Trade and Industry (DTI),
the RDAs and DAs will work in closer
partnership to ensure that national
policy and priorities take full account of
devolved and regional priorities, and
that they also shape more effectively
what is delivered by and through the
RDAs at the regional level;
in consultation with the RDAs, the DTI
will develop new Public Service
Agreement Targets reflecting the
contribution which innovation can make
to achieving the overall economic goals
of the RDAs; and
agree with the RDAs and DAs a set of
regional innovation indicators and assist
the RDAs to set up Science and Industry
Councils or similar arrangements as
regional bodies that bring together
science, technology and business
representatives from the private sector
and universities. This is in line with the
House of Lords Science and Technology
Committee’s findings in its recent report
– Science and the RDAs.1
98
INNOVATION REPORT
Clusters play a key role in driving
economic growth and innovation in
localities, cities and regions. They create an
environment which encourages companies
to adopt innovation-based corporate
strategies and which facilitates knowledge
sharing. The evidence suggests that
Governments cannot create clusters, but
Government and RDAs can help remove
the barriers to their success.
to further assist the RDAs work with
clusters we are publishing alongside
this report the conclusions of the work
by Ecotec on success factors in cluster
development and the Ecotec
Practitioners Guide to Cluster
Development.2
In order to raise the rate of innovation in
the regions, encourage inward investment
and provide high value-added, long-term
jobs, we need to support the development
of knowledge intensive businesses.
to enable the RDAs to attract high valueadded, fast growth businesses the
criteria for the new Investment Grant for
the Regions in England will be redefined so that the main objective is the
creation of sustainable, high-value
investment and jobs rather than simply
maximising the number of jobs.
In Scotland, the Regional Selective
Assistance (RSA) scheme has been
re-focused, including more emphasis on
quality projects and high growth firms.
1 House of Lords Select Committee on Science and
Technology - Science and the RDAs: Setting the Regional
Agenda, 3 July 2003, HL Paper 140-I
http://www.publications.parliament.uk/pa/ld200203/ldselect
/ldsctech/140/140.pdf
2 Ecotec Research and Consulting Limited were appointed
by the DTI, HMT and the RDAs in 2002 to produce a report
to identify the criteria for the successful development of
successful clusters.
Chapter 6
Regional innovation
The Manufacturing Advisory Service (MAS)
is a good example of an expert advisory
programme delivered at a regional level.
MAS is also available, to varying degrees,
within the DAs. In its first nine months it
has been extremely successful. It has had
8600 enquiries, carried out 1000 diagnostic
and advisory visits, and was involved in
200 ongoing in-depth consultancy projects.
5500 manufacturers also attended regional
training and other events.
we will therefore ensure that innovation
is integrated into England’s regional
business support delivery mechanisms,
building upon the MAS model and
including access to innovation and
design advice where this is not explicitly
already provided.
INNOVATION REPORT
99
Problems posed by
regional differences
6.1. The economic gaps between different
parts of the UK create imbalances in our
standard of living, distortions in the
national labour market – especially in the
availability of skilled workers – and
weaknesses in our business performance.
The result is wide disparities in output per
head between regions (Figure 6.1)
reflecting significant differences both in
employment rates and in productivity.
While the focus here is on regional
differences, it is important to note that,
within the same region, there are often
substantial differences in living standards
and economic structures.
6.2. This disparity is also apparent by
looking at regional performance against
some of the critical innovation success
factors. In terms of capacity to absorb and
exploit knowledge, there is wide variation in
the distribution of highly qualified labour
across the UK, with the highest
concentrations in London, Scotland, the
South East and South West (Figure 6.2).
6.3. The picture is little different for the
employment of qualified scientists
and engineers, with businesses in London
employing the highest proportion (Figure 6.3).
6.4. In terms of developing new sources of
technological knowledge, there is a very
pronounced concentration of Research and
Figure 6.1
Output per head by region, 2001
UK
Northern Ireland
Scotland
Wales
East
East Midlands
London
North East
North West
South East
South West
West Midlands
Yorkshire and Humberside
0
3,000
6,000
9,000 12,000 15,000 18,000 21,000 24,000
Gross Value Added (workplace basis) £s per head
Source: DTI Regional Competitiveness Indicators
Figure 6.2
Proportion of working age population with higher education qualification by region, spring 2001
Degree or equivalent
UK
Northern Ireland
Scotland
Wales
East
East Midlands
London
North East
North West
South East
South West
West Midlands
Yorkshire and Humberside
Post-GCE A-level
qualification (excluding
degrees and equivalent)
0
5
Source: Labour Force Survey, Spring 2001
100
INNOVATION REPORT
10
15
20
25
30
% of working age population
35
Chapter 6
Regional innovation
Development (R&D) activity in the
Southern and Eastern areas of England,
even when adjustments are made for the
populations of different regions. This
largely reflects the decisions of a few large
companies in R&D intensive industries to
locate their activities there.
6.5. There also appear to be significant
regional variations in levels of
entrepreneurship. VAT registrations are the
best available measure of business startups by region. Looking at VAT registrations
per head of adult population in 2001,
London and the South East saw the highest
level of entrepreneurship, with levels 61%
and 19% (respectively) above the UK
average. The North East and Wales were
lowest with VAT registrations per head
47% and 31% respectively below the UK
average.
6.6. Access to finance in terms of private
equity investment per head of population
shows a slightly different picture (Figure
6.4). London and the South East show by
far the highest investment per head, with
the West Midlands relatively close behind.
The South West and Wales show the least
investment per head – less than a tenth
that of the South East in 2002. Of the other
regions, East Midlands and North West
show a significant reduction in investment
in the past three years, although figures
may be unduly influenced by one or two
large transactions in certain years, in
particular management buy-outs.
Figure 6.3
Scientific skills by region, 1998 - 2000
UK
Northern Ireland
Scotland
Wales
East
East Midlands
London
North East
North West
South East
South West
West Midlands
Yorkshire and the Humber
0
2
4
6
8
10
12
14
Qualified scientists and engineers as % of employment
Source: Community Innovation survey, 1998-2000
Figure 6.4
Private equity investment per head of population by region, 2000-2002
250
2000
2001
2002
200
150
100
50
UK
M
Ea
st
id Ea
lan s
d t
Lo s
nd
on
No
rth
Ea
st
No
rth
W
es
So
t
ut
h
Ea
So
st
ut
h
W
es
t
M W
id e
l
Yo and st
s
rk
s
Hu hir
m e&
No ber
r
Ire the
lan rn
Sc d
ot
lan
d
W
ale
s
0
Source: British Venture Capital Association (2003)
INNOVATION REPORT
101
6.7. While the Government is committed
to improving the economic performance of
all regions, it orients its policies towards
economic convergence, maximising
growth in all regions in pursuit of a clear
target: the growth rates of the regions
with the lowest output per head should get
closer to those with the highest3.
The Government has pursued an active
regional policy since 1997, believing
strongly that regional needs are best
targeted by regional solutions. It has set
up the RDAs, facilitated the establishment
of voluntary regional chambers, and
developed the role of the Government
Offices. The White Paper “Your Region,
Your Choice” set out proposals for directly
elected regional assemblies in those
regions that wish to have them. One of the
key roles of these assemblies will be to
improve regional economic performance.
This regionalism, however, needs to be
outward looking; we need to maintain and
enhance our international competitiveness
against the strongest regions and subregions of the world.
6.8. If the less wealthy regions are to
improve their performance compared to
those with a high output per head, they will
need to focus the additional resources they
receive on improving the drivers of
innovation such as business R&D, the rate
of start-ups, the level of skills and the
support for high-tech businesses and
equity finance, where they lag behind.
6.9. Since the establishment of the RDAs
we have introduced several policy
instruments to raise innovation
performance throughout the English
regions. We have introduced Regional
Venture Capital Funds and given the RDAs
greater flexibilities in how they spend their
own resources by creating a single funding
mechanism. In addition, we have taken
3 The joint Treasury/DTI/Office of the Deputy Prime Minister
Public Service Agreement target is for all regions to grow
but with a reduction in regional disparities
(http://www.hm-treasury.gov.uk/documents/public_
spending_and_services/public_service_agreements_2001_2
004/pss_psa_index.cfm)
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INNOVATION REPORT
steps to increase the levels of collaboration
between business and universities by
providing a second round of Higher
Education Fund (HEIF) funding and are in
the process of establishing New
Technology Institutes in every region.
6.10. Our approach has also been
underpinned by the devolution of
economic policy-making in Wales, Scotland
and Northern Ireland. The DAs have
already produced their own innovation and
knowledge transfer strategies, either as
separate statements or as an integral part
of their overall economic strategies4.
6.11. The wide regional variations in
productivity, drivers of productivity and
critical success factors for innovation make
it impossible to apply a “one size fits all”
policy. Action to improve performance and
innovation has to be tailored to the specific
challenges and opportunities in each
region. RDAs have made a start in directing
their efforts towards raising the innovation
performance of their regions, but more
needs to be done by optimising national
and regional efforts.
Action to promote innovation
at the regional level
6.12. When RDAs were set up, the
Government made separate funding
streams available to them to support
innovation:
in 2001, the Regional Innovation Fund
(RIF) provided the RDAs with their first
opportunity to use the £50m per year
fund in a flexible way to match their
regional priorities5. RIF was first used to
fund new incubator space, facilitate
networks and encourage clusters, as well
as to deepen knowledge of the region’s
strengths and weaknesses. With RIF
4 Ref: Wales for innovation, – Smarter Successful Scotland,
and for Northern Ireland, Think, Create, Innovate.
5 This initiative built on the Innovative Clusters Fund,
launched in March 2000 to promote the development of
clusters and business incubation projects.
Chapter 6
Regional innovation
funding, RDAs initiated a total of 91
incubator and science/business park
development projects; and
the Government made £30m available
in 2001 to establish five University
Innovation Centres across the UK.
These endeavour to develop top class,
long-term research partnerships between
major business interests and the
universities in industry sectors which are
of strategic importance to the regions.
The RDAs have now adopted this
partnership model using their own
resources (Box 6.1).
Box 6.1
Systems Engineering Innovation Centre
Underpinned by £4.5m funding from the
East Midlands Development Agency BAE
SYSTEMS and Loughborough University
are collaborating in this exciting venture
to create what is planned to become a
unique resource for Systems Engineering
in the UK with global implications for
most sectors of industry and universities.
The Systems Engineering Innovation
Centre (SEIC) at Loughborough will focus
on systems engineering aspects that
provide a framework for the integration
of people, processes, tools and
technology in order to improve the
management of risk, product
configuration and technology insertion
for the development of innovative
products. The Centre will attract top
research scientists and engineers from
universities and industry keen to work
together on the latest innovations in
products, processes and services. It will
offer access to purpose built research
and technology buildings in excess of
25,000 m2; research laboratories;
synthetic environment laboratories;
virtual engineering facilities; office
accommodation; on-site conference
and restaurant facilities and a lecture
theatre and exhibition area.
6.13. The RDAs devote increasing
resources to creating their own initiatives
to support innovation in their regions.
They have continued to invest in services
tailored to the business profile of their
region, creating facilities that provide the
right environment to attract high potential
entrepreneurs and encourage greater
collaboration between businesses and
universities. A key role for the RDAs is to
ensure that national and regional resources
are effectively integrated. Examples of a
range of these activities are given in Box 6.2.
6.14. The introduction of the “single pot”
of finance in 2002 gave the RDAs
substantial funding flexibility to respond to
regional priorities. The last Spending
Review saw resources for the RDAs rise
from £1.7 billion in 2003/04 to £2 billion in
2005/06. Increasingly, the RDAs are now
putting large sums of money into
innovation and Science, Engineering and
Technology related projects – over £250m
in 2002/03 – to complement funds available
at national level.
6.15. RDAs also now operationally manage
a high proportion of European Structural
Funds. The UK’s allocation from the Funds
for 2000-2006 is over £10 billion.
The European Regional Development Fund
(ERDF) is the fund that is most widely used
by the regions to support innovation
projects. ERDF has either launched or
underpinned many major interventions
within regions, providing invaluable
additional funds to complement RDA single
pots. For example, during its first two years
in existence East Midlands Development
Agency spent £9m on activities relating to
innovation, but levered in an additional
£30m in ERDF funding in its Objective 2
areas. A total of £23m of ERDF funding in
the North East will contribute towards the
cost of developing Centres of Excellence
and supporting individual projects that
demonstrably ensure that SMEs are
equipped with the knowledge to exploit the
economic benefits of innovation and
technology transfer. In the North West,
INNOVATION REPORT
103
Box 6.2
Examples of activity in the regions to support innovation
London - London Development Agency
is developing a range of services to help
Small and Medium-sized Enterprises
(SMEs) identify innovation needs and
opportunities and facilitate links to
sources of innovation and knowledge.
Organisations such as the London
Technology Network support the transfer
and exploitation of knowledge and
encourage collaborative innovation and
technology transfer between
academic/research institutions and
business. These efforts will be supported
through further development of the
London Innovation website
(www.london-innovation.org.uk/).
South East - South East of England
Development Agency has established 17
Enterprise Hubs, each supported by at
least one university/research centre,
which are together now incubating over
520 companies. Incubation space in the
region has doubled and survival rates
improved. Each hub supports businesses
in specific high tech clusters and ensures
that the entrepreneurs are integrated into
business services, venture capital and
technological support.
North West - The Textile Incubator at
Bolton Institute is establishing a core and
virtual science base of excellence
£31m of ERDF will fund a variety of
projects and schemes including the Cluster
Development Through Business Support
scheme.
Closer integration of national and
regional innovation strategies
6.16. Innovation is a key feature of both the
national and the regional agenda for
raising productivity.
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INNOVATION REPORT
for the development of smart fibres
and intelligent textiles anticipating the
developments required by the North
West technical and performance textile
cluster, associated sectors and
customers during the next 20 years.
East Midlands - Collaboration between
Nottingham Trent University and the
University of Nottingham has resulted in
the creation of Bio City - 12,000m2 of
world-class laboratories, state-of-the-art
equipment and extensive office space in
one building, providing facilities for
scientists and entrepreneurs working at
the forefront of the commercialising
research and development within the
healthcare and biosciences sectors.
Yorkshire & Humber - Yorkshire Forward,
Sheffield University and UK Coal are
cooperating, with help from Boeing, to
develop and market a 100-acre
brownfield site in South Yorkshire for a
new Advanced Manufacturing Park
(AMP) located in Rotherham. This will be
a high quality science park providing the
focus of innovation in metals and
materials technology in the UK. The AMP
has already attracted world-class
technology based organisations to colocate on the Park.
6.17. If the RDAs are to draw up successful
economic strategies incorporating
improvements in their innovation
performance, it is essential that there is a
clear understanding on specific roles and
responsibilities of Central Government and
the RDAs. It is also necessary that the
RDAs have the expertise and sources of
advice to develop and implement the
innovation elements of their regional
economic strategies.
Chapter 6
Regional innovation
East of England has launched its first two
Enterprise Hubs in 2003 attracting funds
of over £1m with a view to rolling out a
programme of a further eight hubs by
2005. These will act as a co-ordinated
support structure for entrepreneurs and
new businesses, exploiting particular
local strengths in R&D. This will
encourage new generations of
entrepreneurs and facilitate the
development of clusters of businesses.
The first two hubs are in Stevenage
based on pharmaceuticals and aerospace
companies, and at the Babraham
Institute to support early stage
biotechnology start-ups.
North East - In essence, a two-pronged
approach has been developed in which
support for new and indigenous
businesses is provided through the
Regional Cluster Development
Programme and the identification,
exploitation and commercialisation of
R&D (be it public or private) is advanced
through the Strategy for Success (see
Box 6.3). Five Centres of Excellence have
been set up to ‘condition’ technologies
arising from the regional research base
to a point where these technologies can
be commercially exploited.
6.18. In deciding action to be taken at a
national level, versus a regional level, two
principal criteria should be applied:
whether the action varies between
regions and depends on the particular
regional circumstances; and
whether the necessary action is best
delivered at a national or a regional
level, i.e. where there is greatest impact
and/or critical mass.
South West - The “Inspire South West”
(ISW) programme will use European
Regional Development Fund Innovation
Action’s funding to create greater
demand for innovation among regional
enterprises. £4m has been set aside to
fund four regional technology panels.
These will focus on key sectors to
encourage: (i) greater take up of
‘foresight’ information; (ii) support for
and interest in science and technological
innovation among communities and
young people and; (iii) companies to be
more innovative and participate in
business networks to promote
company-to-company learning. ISW
aims to create sustained changes in
business behaviour so that companies
become more future-orientated and
more responsive to change.
West Midlands - Advantage West
Midlands is providing £33m over
4 years to a £60m collaborative
programme between Warwick
Manufacturing Group and the
automotive sector, involving the
Premium Automotive Group and
potentially over 450 supplier companies
in the region. This major programme
involves the take-up of new technologies,
improved manufacturing processes
and increased craftsmanship.
6.19. In implementing this Report, the DTI,
RDAs and DAs will work in closer
partnership to ensure that national policy
and priorities take full account of regional
priorities, and that they also shape more
effectively what is delivered.
6.20. In consultation with RDAs, the DTI will
develop new Public Service Agreement
Targets reflecting the contribution which
innovation can make to achieving the
overall economic goals of the RDAs.
INNOVATION REPORT
105
This process will take account of the
conclusions of the Innovation Report and
other relevant policy developments,
and would be part of the settlement of the
next Spending Round. Once the Targets
have been agreed, each RDA will develop
their Corporate Plan in consultation with
DTI, setting out the outcomes they will
achieve in support of the delivery of
the Targets and addressing the innovation
priorities identified in their Regional
Economic Strategies.
6.21. Effective cooperation amongst the UK
Government, DAs and the RDAs requires a
consensus on defining success and
assessing progress. DTI will lead, as part of
defining the innovation Public Service
Agreement target for the next spending
round, a project involving the RDAs, DAs
and the Office for National Statistics (ONS)
to agree a limited set of innovation
indicators, based on a common
methodology. We will draw on the current
ONS Quinquennial Review of the Business
Enterprise Research and Development
(BERD) survey. We will complete this work
by the end of March 2004 so that it will
contribute to development of the next
Community Innovation Survey (CIS). The
CIS re-surveys in 2005 and will incorporate
recent developments in the business
support infrastructure at both national and
regional levels. This action responds to the
findings of the House of Lords Science and
Technology Committee’s Inquiry into
Science and the RDAs which
recommended that the Government should
work with the RDAs to develop simplified
performance measures that take better
account of the importance of science and
technology to economic development.
6.22. All regions recognise the importance
of exploiting science and technology, but
there has been limited capacity at the
regional level in England to develop and
implement appropriate policies or to
establish a consensus on regional needs.
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6.23. Steps are already being taken to help
science and business connect more
effectively at the regional level. The North
West, North East and more recently the
South East have already established
Science and Industry Councils. London and
East of England have equivalent bodies in
place. The West Midlands, East Midlands,
Yorkshire and Humberside and South West
are in the final stages of considering what
form of body they wish to establish.
6.24. We will build on these developments
by encouraging all RDAs to establish
regional bodies that bring together
science, technology and business
representatives – “Science and Industry
Councils” (Box 6.3). This endorses the
findings of the House of Lords “Science
and the RDAs” inquiry which
recommended the establishment of a
regional Science Council in every region.
Chapter 6
Regional innovation
Box 6.3
Regional Science and Industry
Councils – the concept
The regional Science and Industry
Council (SIC) concept was initially
developed for the North West in 2000 to
establish strategic leadership for science
in the region and ensure its coherent,
active promotion. It was subsequently
adopted by the North East in 2002.
Based on the experiences of the North
West and the North East, the following
key success factors for effective SICs
have been identified6.
they must fully align with the RDA and
the Regional Economic Strategy;
be business-led (large and small),
focusing on those industry sectors
or clusters important to the region’s
economy;
be founded on a clear and realistic
understanding of regional strengths
and weaknesses;
be based on a coherent regional
strategy for the development and use
of the science base, linked to national
priorities;
be chaired by a suitably knowledgeable
and committed individual who has the
stature to command the attention and
respect of all regional stakeholders,
public and private;
be operated in a way that all the key
stakeholders share a commitment to
the regional economic agenda and to
work together in partnership to further
that agenda;
be able to exert genuine influence,
both regionally and nationally; and
be provided with appropriate
implementation resource and support,
ensuring that policy decisions are
implemented effectively.
6.25. The experiences and achievements
of the North West and North East now
provide useful guidance to other regions
on how to develop their own plans to
exploit SET strengths (Box 6.4).
Regional organisations also recognise the
importance of working across regional
boundaries and with Central Government
to strengthen the capabilities of those
providing SET expertise and to ensure
that any company seeking specific
expertise will be able to find the best
provider irrespective of its location.
The MicroNanoTechnology Network
described in Chapter 3 (Box 3.6) is an
example of how the process of developing
both national and regional resources can
be optimised.
Support for innovative
businesses in the regions
6.26 We are strengthening the mechanisms
at the regional level in England for bringing
together innovation, business support and
skills development. Regional Skills
Partnerships are providing the forum in
which the work of all the agencies
involved, including the RDAs, the Learning
and Skills Council, the Small Business
Service and others, can be more effectively
linked to regional economic strategies.
These new partnerships will also enable
partners to collaborate more fully at
regional and local level to meet the needs
of the individual business customer.
CLUSTERS AND BUSINESS NETWORKS
6.27. Clusters play a key role in driving
economic growth and innovation in
localities, cities and regions. They create an
environment where companies can share
best practice and save costs through joint
sourcing. They also create an environment
where knowledge transfer is encouraged,
and organisations can make best use of
each other’s skills.
6 Ref. Arthur D. Little Ltd
INNOVATION REPORT
107
Box 6.4
Examples of activities bringing together business and the
science, engineering and technology base at a regional level.
The North West produced the first
regional science strategy - ‘Northwest
Science’ - in October 2002. The strategy
seeks to ensure that science and
technology in the region’s companies
and universities is of the highest
calibre. The North West has committed
over £120m over the next three years
to science projects. The North West
Science Council (NWSC) has played a
key role in determining the future of
NWDA Science Policy, in particular by
giving direction to, among others,
major cluster strengthening projects
such as the National Biopharmaceutical
Manufacturing facility, Genetics
Knowledge Park, Infolab 21 and the
Organic Materials Innovation Centre.
It has also developed a set of measures
based on scientific excellence,
people/skills, finance/investment and
technology exploitation against which
progress in the region can be assessed
and actions have been agreed to
address shortfalls. It is heavily involved
in developing the region’s major
science projects (e.g. 4GLS,
Microsystems Packaging, Daresbury
Science Park) and will be the
responsible body for the proposed
NWDA Science Fund which will
support major new science
infrastructure projects.
One NorthEast, has established its
“Strategy for Success”. This strategy is
based upon the development of
6.28. The DTI’s Cluster Mapping Report7,
published in February 2001 was the first
attempt to map the UK’s clusters and the
RDAs have since built upon it by carrying out
their own mapping work. This work
highlighted the fact that in many areas
important clusters already exist, such as
Chemicals in the North West or Aerospace
7 http://www.dti.gov.uk/clusters/map/
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INNOVATION REPORT
Centres of Excellence in five areas of
potential world-class excellence, from
the perspective of both research and
the capacity to exploit this research.
Building on the region’s existing
strengths, Centres of Excellence in Life
Sciences, Nanotechnology, Process
Industries, New and Renewable Energy,
Digital Technology and Digital Media
have been established. The principal
function of these centres of excellence
is to ‘condition’ technologies arising
from the research base to a form
whereby they can be utilised for
commercial purposes. The centres will
also undertake technology transfer and
business development. The North East
Science and Industry Council has led
on the design and implementation of
the Strategy for Success Programme,
including the five Centres of
Excellence. It has created a stepchange in university-industry linkages,
leading to the development of new,
shared facilities, e.g. large scale testing
facilities for new and renewable energy
technology, and new collaborative
projects between industry and
academia e.g. the Newcastle University
Grid Computing project. The Council
is also leading on the development
of a new support infrastructure, for
example by the establishment of two
funds totalling £50m for Proof of
Concept and Early Stage technology
venture funding.
in the Midlands. Helping existing clusters
to grow where this makes good business
sense is as important as nurturing clusters
in new high-tech fields such as Biosciences
or Nanotechnology. In Scotland, Scottish
Enterprise has pursued an approach of
supporting key clusters for some years
and current details are given in their
Operating Plan.
Chapter 6
Regional innovation
6.29. Government intervention cannot force
clusters to grow. Nevertheless,
Government and RDAs can remove the
obstacles to their development and
success. These barriers vary in their
significance from place to place. For
example, some locations may need to
provide the housing, transport and other
infrastructure required to allow the
business base to grow. In others the issues
include the supply of incubators and
Science Parks; shortage of skills; the
difficulty for firms to access help in rural
areas or the need to link up with a
research-intensive university.
6.30. One of the most important lessons we
have learnt from all the work that we have
done both nationally and regionally on
clusters is the importance of networks.
Networking activities in the regions are
vital for firms to learn about the benefits of
innovation, identify opportunities for
collaboration and stimulate them to take
action. In many cases, specific fora nurture
priority sectors and clusters at the regional
level, providing the channel for
communicating critical information on how
support can be obtained. RDAs have
already planned significant future
investment to promote business
networking and are striving to integrate the
resources available to them into these
activities (Box 6.5).
6.31. The recent report by Professor
Michael Porter8 for the DTI stressed the
need to continue to develop both the
analytical and facilitation work on clusters.
To further assist the RDAs work with
clusters, we are therefore publishing
alongside this report the conclusions of
work by Ecotec on success factors in
cluster development and the Ecotec
practitioners guide to cluster development:
A Practical Guide to Cluster Development –
Evidence Paper, and a Practical Guide to
Cluster Development.
INVESTMENT GRANT FOR REGIONS
6.32. The Government provides support for
investing in disadvantaged localities
through its Regional Selective Assistance
(RSA) scheme. Historically its goal was to
expand or sustain existing employment
opportunities, but since 2000 we have
placed greater focus on higher quality
projects that have a wider economic
benefit – determined by wage levels, the
amount of R&D, and training indicators.
For example, we have supported the Pfizer
major facilities in Sandwich in Kent, the
Filtronic plant in Newton Aycliffe in County
Durham and Tripos Receptor Research at
Bude in Cornwall.
6.33. To enable the RDAs to attract high
value-added, fast growth businesses the
criteria for the new Investment Grant for
the Regions in England will be re-defined
so that the main objective is the creation
of sustainable, high-value investment and
jobs rather than simply maximising the
number of jobs. Following a review of RSA
in Scotland, the scheme has been refocused for today’s economy, and this
includes more emphasis on quality projects
and high-growth firms.
BUILDING INNOVATION
AND DESIGN INTO LOCALLY
DELIVERED BUSINESS ADVICE
6.34. We have stressed a number of times
in this report the advantages that can be
gained by “thinking innovation” in public
policy and encouraging business to think
so as well. In Chapter 2, we also identified
the benefits to be obtained from building
design principles into product and service
development.
6.35. To exploit the full benefits of our
approach, we must ensure that businesses
receive imaginative and practical guidance
on incorporating innovation and design
into their business planning and operations.
8 http://www.dti.gov.uk/economics/paper3-porter-ketels.pdf
INNOVATION REPORT
109
Box 6.5
Examples of fostering clusters and collaboration
Yorkshire & Humberside - the region’s
Digital Cluster is a highly diverse
industry comprising the electronic and
electrical component sectors, computer
software and hardware producers,
creative design and media sectors.
The cluster employs 80,000 people with
an annual turnover of £7.7 billion.
Yorkshire Forward’s support for the
cluster is aimed at improving its
competitiveness through greater
innovation and technology transfer and
the development of networks.
East of England - Cambridge has a
world-class cluster of inkjet printing
companies, which are specialised in
providing industrial inkjet printing
solutions. Cambridge Display
Technology and Plastic Logic are two
companies based in Cambridge that
use inkjet printing to deposit polymerbased electronics. Biodot and
Biorobotics are using inkjet printing for
precision dispensing of biological
materials in microarrays. An inkjet
consortium has been set up by
Cambridge University Institute for
Manufacturing to enhance the
competitiveness of the existing inkjet
cluster. There is also a large pool of
relevant knowledge in the local area,
including specialist consultancies.
South East - The Isle of Wight Marine
Cluster was one of the first clusters to
be established and it now has upwards
of 30 members. Most of them are small
boatyards involved in the production of
components and equipment for larger
manufacturers. Their prime concerns
were shortages of skilled staff and the
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INNOVATION REPORT
seasonal nature of their work, which
meant long periods when they were
not actively operating. They are now
actively involved in developing their
capabilities in Lean Manufacturing,
selling their services to large
manufacturers and setting up a scheme
to create a skilled labour pool around
the Solent. Most encouraging of all
they are now working together as a
virtual shipyard to compete for, and
produce, complete boats.
West Midlands - The building industry
is currently facing significant
challenges with ever changing and
more stringent environmental
regulation requirements and skills
shortages. The centre will develop and
launch a Construction Information
Services Package; provide a searchable
database; provide a technical alert
service and provide a helpline service
providing access to technical experts at
the Centre; help companies to improve
their competitiveness by increasing
their awareness of innovative
developments around the world and
provide specialist support for their
efforts to innovate in the design and
manufacture of products and systems.
The Creative Entrepreneurs Club
developed through the Lighthouse
Centre for Architecture and Design in
Glasgow provides a network hub with
international links for creative industry
businesses across Scotland. Activities
include expert presentations, business
to business dialogue and a filtering
service for potential investors.
Chapter 6
Regional innovation
6.36. The UK’s Manufacturing Advisory
Service (MAS) is a good example of an
expert advisory programme delivered at a
regional level. MAS operate to varying
degrees within Scotland, Wales and
Northern Ireland. It is designed to address
the practical operational needs of
manufacturers, particularly SMEs.
By providing advice and assistance from
leaders in their field – on hand and easily
available – MAS enables manufacturers to
succeed and improve their productivity.
RDAs and the Welsh Assembly
Government fund the Regional Centres for
Manufacturing Excellence (RCME) but their
expenditure will be supplemented by a
£14m contribution from DTI over three
years. This budget also provides for DTI’s
direct funding of the National Network of
Centres of Expertise. In Scotland, similar
advice is provided through the Enterprise
Networks. The Scottish Executive is
however currently reviewing its technical
and specialist support to manufacturers in
light of the success of the MAS
programme. Progress of the MAS to date
is summarised in Box 6.6.
Box 6.6
Progress of the Manufacturing
Advisory Service (MAS)
MAS impact to December 2002
(the first 9 months)
Throughout the regions:
around 8600 enquiries and 1000+
diagnostic and advisory visits;
5500 manufacturers attending regional
training and other events; and
200+ ongoing in-depth consultancy
projects;
The National Network:
490 applications and pre-registrations;
200 organisations approved
The national website:
350,000 hits since April 2002; and
600 pages of content and links
On average, impact of the service
witnessed to date:
improvements in people productivity
of about 30%;
reduction in wastage of 37%;
improvement in space utilisation of 45%;
improvement in on-time delivery of 42%;
increased stock turns of 86%;
improved equipment productivity of
about 30%; and
benefit to each firm in value added
of about £85,000 per year.
The DTI Manufacturing Advisory Service
website is specifically designed to help
UK manufacturers, large and small, to
identify sources of manufacturing related
support and expertise. There are many
excellent case studies presented which
demonstrate the very real improvements
gained by customers of the service.
9 http://www.dti.gov.uk/ manufacturing/mas/index.htm
INNOVATION REPORT
111
6.37. We will therefore ensure that
innovation is integrated into England’s
regional business support delivery
mechanisms, building upon the MAS
model and including access to innovation
and design advice where this is not
explicitly provided already.
6.38. Utilising the best practice products
within the DTI’s new Business Support
portfolio, the Design Council will take the
lead in enhancing the design awareness
of MAS, Business Link and similar
intermediaries in their dealings with
individual companies. The Design Council
will help improve the design awareness skills
and proactivity of such advisers by leading
on the development for intermediaries of:
the design elements of a Business
Diagnostic Toolkit for use by advisors,
including those in Business Links
responsible for providing business
support assistance to individual
companies;
the training of MAS, Business Link and
similar advisors to significantly enhance
their awareness of the role of product
development and design in business
success; and
a continuing information resource for
advisers which will include the provision
and updating of regional registers of
design providers to whom companies
can be referred by intermediaries with
confidence.
6.39. Virtually all elements of the
innovation agenda set out in this report
to develop high performance, innovative
companies have a regional dimension.
These are not repeated here, but are
acknowledged in other chapters such as
the skills and knowledge transfer
requirements (Chapter 2), the role of
universities, the Small Business Service
(SBS) and Business Link (Chapter 2),
technology transfer and commercial
exploitation (Chapter 3), access to national
innovation assets (Chapter 4) and
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INNOVATION REPORT
exploitation of global links (Chapter 7).
All of these elements add up to a powerful
overall system for improving innovation
performance at local, regional and national
levels, emphasising the need for close
working relationships between national
and regional stakeholders.
Chapter 7
Global links
INNOVATION REPORT
113
Summary
Globalisation is changing and widening the
basis of competition. UK companies are
having to adapt to this by producing goods
and services that are superior to those
provided by their competitors, who are not
standing still. Successful companies have a
global perspective and are prepared to use
it not just for international export purposes,
but for understanding and accessing
technologies from other countries that can
add to their competitiveness.
95% of the world’s science and technology
is based outside the UK. Successful firms
will tap into the global knowledge base,
often networks with foreign businesses
and research organisations, to gain
competitive advantage. The GlobalWatch
service communicates technological
advances to thousands of businesses/
researchers across the country, runs
technology missions and international
secondments. This action is complemented
by a network of specialist science and
technology staff in British embassies
across the world.
To increase international Science and
Technological collaboration we will:
increase the number of International
Technology Promoters by a third and
double the number of outward
secondments;
realign the delivery of our services to
meet customer needs; and
increase participation of UK businesses
in EU and pan-European programmes
such as EU Framework and Eureka,
starting with a new service to help
access to the EU’s sixth Framework
Programme.
The UK is the second most popular
destination in the world for inward investors
and number one in Europe. In addition to
bringing revenue and prosperity to the
country, inward investment is also an
important means of improving knowledge
transfer and increasing value-added
operations into the UK. UK Trade &
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INNOVATION REPORT
Investment enable potential inward
investors to identify technologically
advanced UK firms with which they may
wish to build strategic collaboration.
Our international innovation agenda
should be driven by the contribution it
can make to wealth creation in the UK.
International trade and investment,
which are UK Trade & Investment’s
prime responsibility, are major drivers
for stimulating innovation. UK Trade
& Investment will take responsibility
for the international innovation agenda
by ensuring Government coordinates
its actions in this area.
Companies that engage in international
business tend also to be more innovative
and competitive or engaged in high levels
of Research and Development (R&D).
Exporters have a better chance of survival
than non-exporters, and they tend to
preserve jobs during economic downturns.
For UK firms who want to expand into
overseas markets, UK Trade & Investment
provides support for companies across the
range of international business activities
including overseas market contacts for
exporters, overseas investment, standards,
joint venture partnerships, international
sourcing of science and technology,
participation in international collaborative
programmes.
UK Trade & Investment is currently
evaluating all its products and services to
re-deploy resources where it adds the most
value.
To strengthen our effectiveness, UK
Trade & Investment will produce a more
customer focussed and coherent group
of products and services as a result of
this process.
Chapter 7
Global links
Global Links
7.1. The global economy is changing.
Trade barriers are eroding, new markets
are opening up, bringing opportunities to
UK firms as well as threats from potential
competitors. Competitive pressures are
increasing. Reductions in transport and
communication costs mean that customers
face a wider range of potential suppliers.
Firms also have a greater choice in where
to invest. Many multi-national companies
now conduct research in several bases
located across the globe. UK firms are
having to adapt to this environment by
producing products that are superior to
those provided by their international
competitors – who are not standing still.
Successful companies are formulating their
strategies in the context of the world market,
world science and technology and world
competition. The Government can help by:
promoting international collaboration in
science and technology;
encouraging inward investment of high
value added activities; and
assisting internationally competitive
companies.
7.2. Governments around the world are
engaging in policies to promote innovation.
(see examples in Box 7.1)
Box 7.1
Recent initiatives overseas to move innovation up the policy agenda
Canada:
The Canadian Federal Government
published an innovation and skills agenda
and strategy in 2002. This sets out
initiatives designed to achieve targets to
improve Canada’s economic growth and
social development by 2010. Targets
include raising Canada’s rate of R&D and
developing ten internationally recognised
technology and community-based clusters.
Actions include more support for university
research and its commercial exploitation at
national and local levels, the development
of specific technologies using publicprivate partnerships, and a regulatory
environment more conducive for business
innovation.
Netherlands:
The Dutch Prime Minister recently
launched an “Innovation Platform”, a
debate about how to strengthen innovation
as the future driver of economic growth.
The Platform aims to produce its first
concrete action programme within six
months. In addition, the Dutch Cabinet has
submitted a paper to Parliament and the
platform, “In Action for Innovation”.
Specific policy suggestions include greater
tax incentives for private sector R&D in
Small and Medium-sized Enterprises
(SMEs), increasing the flow of foreign
knowledge workers and entrepreneurs,
and stimulation of more collaborative
research and development.
Germany:
The Action Plan on innovation in SMEs
has been developed to combat the
decline – from a high base – of the SMEs
share of business R&D. It combines
current and new initiatives; an example is
the refocusing of R&D grants available in
the eastern Länder towards growing firms.
South Korea:
In 2001 the Science and Technology
Framework Law was enacted and brought
about several important changes in
science, technology and innovation policy
in Korea. The law places emphasis on the
co-ordination of national science and
technology and R&D policies and
investments, regardless of sponsoring
ministry. The Government has also
initiated new programmes to promote
technology transfer, diffusion and
commercialisation of new technologies.
INNOVATION REPORT
115
7.3. World trade has grown enormously in
recent decades. The value (current prices)
of world exports of merchandise goods &
services rose from $2.4 trillion in 1980 to
$8 trillion in 2002. Investment flows and
economic activity increasingly crosses
borders. The UN World Investment Report
(2003) estimated that the world stock of
(inward) Foreign Direct Investment (FDI)
was equivalent to 22% of Gross Domestic
product (GDP) in 2002, compared to under
7% in 1980. Over that period, the UK stock
of (inward) FDI increased from $63 billion
to $639 billion.
7.4. A global outlook is a characteristic of
successful firms. All can benefit from small
businesses producing specialised
equipment and services to large bulk
suppliers. For innovative companies,
trading internationally can be very
important. Markets and leading edge
customers for a particular product or
service may be overseas. Commercial
dealings with them provide invaluable
market intelligence and sources of
technical knowledge. Those high
technology SMEs producing novel
products that take a risk and
internationalise early may reap the rewards
later of becoming a global market leader.
Establishing an international presence,
however, poses difficult commercial
challenges for SMEs, and assistance for
smaller businesses can help bring them to
this global marketplace.
7.5. The UK does 5% of the world’s science,
which means that 95% of the world’s
science and technology is based outside
the UK. Successful firms will seize
opportunities to build international
networks to exploit knowledge, involving
both foreign businesses and research
organisations. Overseas firms see the UK
as an attractive location for investment.
Inward investors can bring new
technologies or practices to the UK which
have knock-on benefits to the local, and
ultimately regional economy.
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INNOVATION REPORT
7.6. The reduction of trade barriers within
the EU Single Market has also acted as a
stimulus to growth, allowing innovative UK
firms to sell their goods or services into a
larger market. Membership of the
European Monetary Union could also bring
the UK significant economic benefits.
The HM Treasury assessment of the five
economic tests concluded that, were
sustainable and durable convergence to be
achieved between the UK and euro area,
UK national income could rise between 5
and 9% over a 30-year period1. Sustainable
and durable convergence between the UK
and EU economies is essential to realise
the benefits from increased trade,
investment, competition and productivity.
7.7. The UKs role as a leading member of
European Union brings opportunities to
participate in, and benefit from, the wide
range of business and research support
available. As well as the Framework R&D
programme, which is worth some £350m
per year to the UK, the Structural Funds,
which are offered at regional level, bring
some £100m to the task of stimulating
innovation on a substantially larger scale
than domestic schemes. Firms and other
organisations need to be alert to the
potential of these EU offerings. In Scotland,
the Scottish Proposal Assistance Fund
(SPAF) helps SMEs to access the expertise
needed to write high-quality proposals for
FP6 funding, whilst the recently announced
Proposal Assistance for Co-ordination of
European Research fund (PACER) will help
universities with the up-front costs of
bidding to become a coordinator of
Framework integrated projects.
7.8. Government helps UK-based
businesses to access the global knowledge
base by reducing the costs and risks of
access and exploiting economies of scope
and scale.
1 HM Treasury “UK Membership of the Single Currency, an
Assessment of the Five Economic Tests (2003)”,
http://assessment.treasury.gov.uk/
Chapter 7
Global links
International Collaboration in
Science and Technology
7.9. For UK-based firms which wish to
acquire knowledge of technological
developments, advanced skills and
scientific advances in other countries,
develop their businesses by acquiring the
GlobalWatch service (formerly known as
the International Technology Service (ITS))
offers a range of practical help. This
includes a website2 which carries out over
80,000 technology related searches each
month and the GlobalWatch magazine
with a circulation of 23,000.
7.10. The GlobalWatch service also runs
about 30 technology focussed missions
and 50 international secondments each
year (see boxes 7.2 and 7.3 for examples
of secondments and missions we have
supported), as well as facilitated
technology-partnering with several
thousand firms through the International
Technology Promoters (ITPs). The ITPs are
business people with experience of
developing technology partnerships
between UK business and overseas
organisations. They support technology
partnering of various styles, often acting as
the precursors to more formal licensing or
other commercial deal making. The
GlobalWatch service also supports bilateral
science and technology activities with
Russia, Japan, South Korea, and China
through high technology industry forums
and manages the BRITECH bilateral
support programme for R&D with Israel.
7.11. The Foreign and Commonwealth
Office (FCO) has established a new network
of science and technology attachés in key
countries around the world. Working
closely with the DTI, UK Trade &
Investment, British Council and others, the
network helps inform policy making on
science and innovation, helps companies
access overseas innovation and
technology, facilitates high-tech trade and
investment and uses science and
technology as a vehicle to maximise the
UK’s impact abroad.
Box 7.2
Secondments offer new skills on joining
TME (Total Maintenance Engineering) –
an SME based in Gateshead – sent Martin
Goodfellow on a three month
secondment to France with financial
support from the GlobalWatch service.
This came about when TME realised that
French apprentice-trained engineers had
a greater breadth of knowledge and were
the preferred option in their sector for
work in the UK.
After his secondment to Les Compagnons
du Devoir, Martin Goodfellow had gained
specific knowledge and best practice of
the training regimes that could be applied
in the UK. This resulted in an increase in
staffing and in apprenticeship staff and
profits by a factor of five. Since the
secondment, TME has worked with the
Prince’s Trust to secure 20 places every
year for firms in the UK to send
apprentices to France for two years of
their apprenticeship training, acquiring
advanced skills and techniques
appropriate to precision welding and
gaining knowledge about management
techniques for developing an
international business.
Later, Emmanuel Constans from Les
Compagnons du Devoir spent 6 months
at TME’s premises. The inward
secondment brought French skills and
expertise in welding fine steel, aluminium
and titanium to the UK. The direct result
of this secondment was the recruitment
of 12 apprentices in this work. This
encouraged a multi-national food
manufacturer to stay in Gosforth,
Newcastle. Previously the company had
been considering shedding jobs and
moving from its base due to the lack of
locally available welding skills.
2 www.globalwatchonline.com
INNOVATION REPORT
117
7.12. There are also a number of bilateral
links which enable researchers and business
people to share knowledge between the UK
and overseas. One such is the UK-Texas
Bioscience Initiative, which aims to
promote collaborative R&D in biosciences
and related topics between researchers in
the UK and the region around Houston,
Texas. In Scotland, the Edinburgh-Stanford
Link was established as a programme of
research and training linking the Human
Communication Research Centre (HCRC) at
the University of Edinburgh with the Centre
for the Study of Language and Information
(CSL) at Stanford. The focus is on speech
and language technology, an area in which
the participating centres both have
internationally recognised reputations for
excellence. The Link is fully funded by
Scottish Enterprise (SE), with £5.3m for
commercially focussed, early stage
research over five years and a further
£700,000 for commercialisation activities
relating to the research.
7.13. These services have undergone
considerable change and expansion over
the past few years. For example, we have
already taken some steps towards
integrating international knowledge
transfer with the UK domestic programme.
We now use a common team of external
consultants, to arrange the domestic
Knowledge Transfer Partnership (formerly
Teaching Company scheme (TCS)) projects
and the outward secondments that are
offered through the GlobalWatch service.
7.14. In terms of our future offering of
individual elements of support for
international collaboration science and
technology we will:
expand the ITP network by a further six
people to cover the Nordic countries,
southern Europe, the Eastern European
countries, India, Australia and South
America; and
seek to double the number of outward
secondments to at least 120 by 2005/06.
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Box 7.3
Technology mission: Getting to grips
with Alzheimer’s
Over 600,000 people in the UK suffer
from Alzheimer’s or Parkinson’s disease,
and a further 100,000 a year suffer a
stroke. Some of the latest therapeutic
approaches are being developed in the
US, so the GlobalWatch service, working
with the British Embassy science team in
Washington and Boston, arranged for
representatives of 7 UK bioscience firms
and a senior academic from King’s
College London to visit leading research
institutions and businesses in Maryland
and Massachusetts.
Whilst respecting the Intellectual Property
of both parties, the visit enabled UK
researchers to gain an insight and
transfer back to the UK knowledge of the
latest thinking of how UK teams are
focusing on the development of therapies
and treatments. Also there were
opportunities to learn about how the
drugs companies are working in
collaboration with the universities and
national institutes in the field.
7.15. Our recent review of the organisation
of cross-Government support in this area
recommended that service provision should
be aligned to meet customer needs rather
than reflect organisational convenience.
More specifically, UK and international
knowledge transfer programmes should
feed off each other and be promoted and
delivered through the same channels and
international activities should be targeted
and delivered against a clear strategy
and business plan. We will work to realign
the delivery of our services to implement
these recommendations.
Chapter 7
Global links
7.16. The Technology Strategy3 will also
be used to realign our overseas activities
with the overall direction of strategic
innovation and at the same time offer new
perspectives in other fields. We will align
our overseas technical missions
programme to the priorities of the
Technology Strategy as well as to any
opportunities emerging from the activities
of the various networks or projects
contributing to the strategy. We expect to
achieve these objectives within the present
envelope of running 30-40 high quality
technical missions per year.
7.17. Maximising European opportunities:
Nowadays, UK-based businesses routinely
enter into a wide range of joint ventures
and collaborative R&D programmes with
firms in many other countries to develop
and exploit new products and services.
With our partner nations in Europe there is
an opportunity to create a research trading
bloc on a par with that in the US.
operating in a highly fragmented
marketplace. The current programme,
Framework 6, allocates some D17.5 billion
(£12 billion) to research over the period
2002-2006. Framework gives priority to the
following fields: life sciences, genomics
and biotechnology for health; information
society technologies; nanotechnologies
and nanosciences; knowledge-based
multifunctional materials and new
production processes and devices;
aeronautics and space; food quality and
safety; sustainable development, global
change and ecosystems; and citizens and
governance in a knowledge-based society.
(see example in Box 7.4).
Box 7.4
Retail is data-mining through Framework
7.18. The European Union is now
encouraging the nations of Europe to coordinate their research efforts through the
concept of the European Research Area
(ERA). The UK welcomes the ERA concept.
We believe that it can help to relieve some
of the rigidities that have slowed down
European industrial performance, by
encouraging greater mobility for researchers,
integrated and efficient use of resources as
well as a more coherent approach to
research planning and policy making.
A team led by Maurice Mulvenna, from
the University of Ulster, participated in
an EU-supported collaborative research
project which helped prove the viability
of data mining in on-line retail
applications. The success of their
involvement led to the establishment of
a spin-off company – MINEit Software –
which was selected as the Software
Industry Federation’s New Company of
the Year in 2001. One of MINEit’s
products won the European IST Grand
Prize in the same year. The research was
used to enhance commercial software,
which is now used by more than 500
organisations worldwide.
7.19. Since 1984, the EU has sought to
promote industrial innovation through the
Framework series of collaborative R&D
programmes. Framework enables UK
businesses and research organisations to
enter project-based partnerships with
organisations throughout the EU and
beyond. Through Framework, European
researchers can collaborate on precompetitive as well as basic R&D to attain
a degree of critical mass that can offset
some of the natural disadvantages of
7.20. The UK has always been an active
participant in European research and
contributes considerably to its
development. UK participants receive
about D510m (£350m) per year according
to official data, a proportion that compares
well with the UK’s share of European GDP.
In 2001, participation from universities was
the highest in Europe; participation by
businesses was second only to Germany.
3 Please refer to chapter 3
INNOVATION REPORT
119
7.21. Framework represents a major
opportunity for UK business to benefit
from the available support and create
international alliances. It is therefore a
cause for concern that UK business
investment in Framework seems to be
declining. The reasons for this are:
the complexity of the application process
incurs significant costs;
delays inherent to bidding with
Framework inhibit success in some
leading edge technologies;
Framework tends to support research
suitable to large public research centres
and larger firms; and
the lack of a clear and distinctive national
research structure works against UK
industrial involvement.
7.22. Recognising the vital importance of
the Framework Programmes to the UK
economy the Government has long
provided a wide range of expert help and
support to UK organisations seeking
funding from this programme through its
network of National Contact Points.
We continue to develop stronger networks
for promoting Framework to the
organisations that are most suited to this
type of engagement (e.g. those involved in
UK technology programmes, regional
clusters and networks created through the
Technology Strategy).
We have:
made it easier for UK organisations to
become aware of the opportunities
offered by the current (sixth) EU
Framework Programme by enabling
them to access the wide range of
National Contact Point experts by setting
up a single, centralised information and
promotion service4; and
rationalised the system of National
Contact Points for specific Framework
thematic fields, to reduce the number of
separate contacts and provide a more
holistic service to users.
We will:
press the European Commission to
simplify the application process for
Framework Projects to reduce the cost
and time needed by business to prepare
early stage bids; and
seek to integrate more closely the EU’s
Innovation Relay Centres in the UK with
other national efforts that inform and
involve business in opportunities to
work with European partners and to
benefit from research results.
7.23. We wilI aim to ensure that future
Framework programmes and the processes
involved complement UK priorities, as
developed through the Technology
Strategy) and focus on those areas where
European collaboration delivers greatest
added value to the UK. As the EU grows, it
will become more difficult to predict the
outcome of Framework bid calls but we
will aim to ensure that UK-led bids involve
high quality work and partners. We believe
this to be the surest way of maintaining the
success in Framework that we have
enjoyed up to now.
4 www.fp6uk.ost.gov.uk
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INNOVATION REPORT
Chapter 7
Global links
7.24 In addition, the EU will publish an
Environmental Technology Action Plan.
This is intended to stimulate innovation in
environmental technologies by identifying
barriers. We keenly support this process
and are encouraging the European
Commission to carry out a number of
measures including:
ensuring that the Framework
Programmes are designed and
administered in a way that stimulates
innovation in environmental
technologies; and
exploring ways of establishing a fast
track route for environmental technology
outputs from the Framework
Programmes to be taken through to the
LIFE Environment Demonstration
Programme, to encourage market
penetration for innovative technologies.
7.24. The UK is also a leading member of
the Eureka initiative. Eureka is a panEuropean network to stimulate civil
collaborative R&D with clear market
relevance. Eureka projects have generated
prototypes of advanced products,
processes and services. Well known
examples include digital radio, the
“Galileo” airline booking system, the
animation software for “Walking with
Dinosaurs” and beer can “widgets”. Eureka
complements Framework but covers a
wider geographical area with 34 members,
including the European Commission. Any
public support for projects comes from
individual governments.
7.25. The UK budget for Eureka has fallen
compared to that of other leading
countries. Since 1994 we have channelled
funds to helping SMEs. Other Eureka
partners contribute significantly more.
Firms that obtain DTI domestic R&D
support have been encouraged to consider
forming or joining collaborative Eureka
projects, but inevitably such firms will be a
very small proportion of the population.
The new Technology Strategy should offer
opportunities for bids into Eureka to be
considered on their merits.
7.26. We will work with business to
increase participation in Eureka in line with
the priorities identified by the Technology
Strategy and operating within our new
business support products for
collaborative R&D and knowledge transfer
networks.
Inward Investment
7.27. Currently we are doing well. The UK
is the second most popular place in the
world to do business and number one in
Europe5. We are focussing on sustaining
this position, which is underpinned by a
stable economy, flexible labour markets
and relatively low tax rates.
7.28. For overseas firms, UK Trade &
Investment, the Regional Development
Agencies (RDAs) and the DAs provide
tailored help for inward investment into the
UK. Foreign-owned companies undertake
one-third of UK business enterprise R&D
and some long-standing UK subsidiaries of
foreign multinationals have worldwide
leadership in particular product lines.
Foreign-owned companies thus make a
substantial contribution to the UK’s overall
innovation effort and facilitate the spread
of technological and business best practice.
They also provide UK-based businesses
with access to leading-edge materials,
components and services as well as
sophisticated customers on their own
doorstep.
5 UNCTAD (United Nations Conference on Trade and
Development) World Investment report 2003.
INNOVATION REPORT
121
Box 7.5
Knowledge transfer
through cross-border clusters
A number of countries have developed
cross-border clusters for mutual benefit,
the rationale being to stimulate greater
cross-fertilisation of innovation and
thereby contribute to enhanced Foreign
Direct Investment. Examples are;
Denmark/Sweden (resund); the
Switzerland-France (near Basel) cluster
stimulating innovation in biotechnology;
and the Sweden/Finland/Baltic’s cluster.
7.29. UK Trade & Investment’s Global
Partnerships Service strengthens businessto-business partnerships. This service
enables potential inward investors to
identify technologically advanced UK firms
with which they may wish to build strategic
collaboration. The AGES (Attracting Global
Entrepreneurs Scheme) initiative targets
expatriates and foreign nationals who have
innovative business proposals or have
management experience as entrepreneurs
to relocate to establish start-ups or join
emerging start-ups.
7.30. Like every other developed country
we understand that we cannot compete on
the same terms as the low wage, newly
emerging economies such as India or
China, and we have to look at increasing
the value added to promote the UK as a
great place to do business. Our strengths
include being the world’s fourth largest
economy, with a world-class Science,
Engineering and Technology (SET) base
and an international language.
7.31. Over the last five years, UK Trade &
Investment has successfully refocused its
resources on encouraging high-tech
companies into the UK and, more recently,
since 2002, has taken responsibility
for the development of the White Paper6
commitment to attract global
entrepreneurs. In today’s climate the key
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INNOVATION REPORT
is the quality of the companies we want
to encourage into the UK. Science and
technology, creativity and innovation and
adding value represent the future new
investment in this country.
7.32. We recognise that this is an ongoing
process. Supported by Government
policies that have invested more in R&D,
science and technology and education,
UK Trade & Investment will spend £6.3m
on lead generation and £4.5m on
promoting the UK to potential inward
investors in 2003.
7.33. Our international innovation agenda
should be driven by the contribution it can
make to wealth creation in the UK.
International trade and investment, which
are UK Trade and Investment’s prime
responsibility, are major drivers for
stimulating innovation. UK Trade and
Investment will take responsibility for the
international innovation agenda by
ensuring that government coordinates its
action in this area.
Areas of activity likely to be included:
The Global Partnerships Service
After 15 months of operation, the Global
Partnerships Service has had a number
of successes leading to the transfer of
novel technologies to UK partners.
Subject to a review in September 2004
we plan to roll out the service to the
entire UK Trade & Investment network;
The AGES (Attracting Global
Entrepreneurs) Since its launch in
January 2003 the initiative has scored a
number of wins. We will evaluate the
success of this pilot initiative when it
comes to an end in March 2004; and
6 DTI White Paper “Opportunity for all in a World of
Change: Enterprise, Skills and Innovation, Feb 2001.”
http://www.dti.gov.uk/opportunityforall/
Chapter 7
Global links
UK Trade & Investment research and
technology website and signposting
We will develop UK Trade & Investment’s
research and technology website so that
it effectively signposts investors to
relevant science and technology
development in the UK; and establish a
network of experts who can similarly
signpost investors.
7.34. The recent House of Lords Select
Committee on Science and Technology
Report on Science and the RDAs7
highlighted the importance of exploiting
science, technology and engineering for
economic gain, and in particular the need
for the true integration of national and
regional perspectives.
7.35. In terms of regional action on
international innovation, we will:
ensure that as regional Science and
Industry Councils are established, they
incorporate an international element to
their activities in order that all regions
are able to collaborate on equal terms
with the best in the UK and
internationally. This will build on the
work already being undertaken with the
RDAs and DA to provide up to date
information about regional science and
technology strengths to potential
inward investors as well as indigenous
businesses; and
Developing internationally
competitive companies
7.36. Companies that engage in
international business tend also to be more
innovative and competitive or engaged in
high levels of R&D8. Research also
indicates that for the service sector
outward investment is key to establishing
a presence in foreign markets. Exporters
have a better chance of survival than
non-exporters, and they tend to preserve
jobs during economic downturns.
UK Trade & Investment is dedicated to
helping companies become internationally
competitive and preparing them for a
global market place.
7.37. For UK firms who want to expand into
overseas markets, UK Trade & Investment
provides support for companies across the
range of international business activities
including overseas market contacts for
exporters, overseas investment, standards,
joint venture partnerships, international
sourcing of science and technology and
participation in international collaborative
programmes. Other countries provide such
services in different ways (see example in
box 7.6).
redefine the criteria for financial
assistance, with greater emphasis on
creating sustainable, high value added
projects and jobs in the new Investment
Grant for the Regions (See chapter 6).
7 House of Lords Select Committee on Science &
Technology 5th Report, Session 2002-03: Science & the
RDAs: SETting the regional Agenda
http://www.publications.parliament.uk/pa/ld200203/ldselect
/ldsctech/140/14003.htm
8 University of Nottingham – Exporting and Business
Performance 2001.
INNOVATION REPORT
123
Box 7.6
Finpro (www.finpro.fi)
Finpro is an association owned by
Finnish companies which aim to
guarantee that Finnish companies,
especially SMEs, have access to high
quality, comprehensive internationalisation
services in different parts of the world.
It operates in Finland and in 51 Finland
Trade Centres around the world.
Finpro supports Finnish companies by
helping them find effective operational
models and solutions for
internationalisation. Services range from
target market analyses and creation of
market entry strategies for companies to
full-scale planning and execution of an
internationalisation project for a company.
2002 saw a number of changes and
developments for Finpro. In response to
the ever-changing situation in global
markets, three new Trade Centres were
opened in countries with growing
business potential for Finnish companies;
Chile (Santiago), Russia (St Petersburg)
and Norway (Hammerfest). To strengthen
the local service supply in Finland and,
in co-operation with other operators in
the Finnish innovation environment, a
new e-service portal, Business Finland,
www.yritys-suomi.fi was founded.
The first concrete actions were taken
towards the creation of a “One Stop
Internationalisation Service”, a database,
pulling together information from a
number of service providers.
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INNOVATION REPORT
7.38. UK Trade & Investment
commissioned a comprehensive review of
the needs of their existing and potential
customers. From over 6,000 observations,
the Review concluded that their customers
primarily wanted sector-specific
information relating to target markets and
contacts there and in the UK. The report
also showed that UK Trade & investment
needed to strengthen its support for
high-growth priority sectors, particularly
those in technology-driven industries.
7.39. UK Trade & Investment is currently
evaluating all its products and services to
redeploy resources where it adds the most
value. To strengthen our effectiveness,
UK Trade & Investment will produce a
more customer-focussed and coherent
group of products and services as a result
of this process.
7.40. A recent evaluation of the UK Trade
& Investment Passport Scheme, which
provides potential new exporters with a
comprehensive range of help and advice to
make them internationally competitive,
shows that user businesses have improved
their innovative capability. Some 47% of
customers had improved their use of
international networks, with 35% having
boosted their capability for technological
innovation and 28% investing in improving
their software capability.
7.41. While exporting is important, a
company may consider entering an
overseas market simply to have greater
contact with new ideas and technology.
Also many entrepreneurs set up high
technology companies with global markets
in mind because they sell to highly
specialised customers, few of which exist
in any one country. Such start-ups have
highly specific developmental needs as a
result.
Chapter 7
Global links
7.42. To support this trend UK Trade &
Investment has refocused its organisation
to create new teams to provide support to
companies in 10 high value sectors. These
include: biotechnology and pharmaceuticals;
chemicals; communications; creative and
media; education and training; electronics
and IT hardware; healthcare and medical;
and software and computer services.
We also encourage innovation in other
sectors where a value-added product can
transform an industry, such as smart
textiles. The sector teams are designed
to focus our support on high value added
areas and to help innovative companies
to grow their business.
7.43. UK Trade & Investment has employed
sector specialists in the US, for example
with specialist ICT and biotech expertise,
(see Box 7.7) to provide additional support
for UK companies in these highly
innovative sectors to win business
overseas. We are investigating extending
this to other key markets.
Box 7.7
Working in a Global Marketplace
UK Trade & Investment have developed a
successful initiative to link US venture
capital with the dynamic UK
biotechnology sector. It was recognised
that UK firms faced difficulties finding
capital investment at the post start-up
stage. UK Trade and Investment’s
biotechnology specialist in San Francisco
put together two visits by US venture
capitalists interested in funding high
quality research and innovation in UK
biotechnology. We have just completed
the second Bio TransAtlantic event, and
have put 25 US venture capitalists and
major bio/pharma companies directly in
touch with over 40 selected UK biotech
firms. We have involved british venture
Capitalists to act as intermediaries for
their US counterparts and large US
Pharmaceutical companies. UK Trade &
Investment also organised training
workshops to help the small UK biotech
companies make effective presentations
to demanding US venture capitalists.
INNOVATION REPORT
125
126
INNOVATION REPORT
Action plan
INNOVATION REPORT
127
128
Action Areas
Innovation Report Proposals
Ensuring we have
the skills to
support innovation.
DTI and DfES are jointly leading the Skills Alliance to implement the
Skills Strategy. RDAs will develop Regional Skills Partnerships with
their key partners. DTI will co-sponsor the Skills for Business
network. DTI will also develop curriculum material with Business
Schools to aid the teaching of skills for the management of high
tech, fast growth businesses, and will support DfES work to develop
capacity in Centres of Vocational Excellence (CoVEs).
Maximising
potential in the
workplace.
DTI will promote the benefits of information and consultation
(I&C), taking forward the framework agreement so as to encourage
increased and improved workplace I&C ahead of the required
implementation date of March 2005. To spread the innovation
agenda through Britain's workplaces, DTI will establish a joint
CBI/TUC Innovation Taskforce.
Supporting
innovation
in SMEs.
The SBS will ensure that Business Link supports innovation in SMEs
through the provision of relevant advisory services, development of
a flexible Leadership & Management Programme (with DfES) for
small business leaders, strengthened links between skills and
business support programmes, and working with other partners to
ensure technological and design brokerage is available locally,
regionally and nationally.
Supporting women
entrepreneurs.
The SBS will work with RDAs, Business Link and others to improve
business advice, mentoring and networking opportunities for
women who want to start or grow a business. We will develop
a comprehensive Toolkit –‘Effective Business Support for Women’ to complement current adviser training and we will also strengthen
the existing network of women’s enterprise agencies.
Incorporating
design to
add value.
The Design Council and DTI will work with companies in up to 10
industry sectors to demonstrate how innovation can be enhanced
through the improved use of design. The Design Council and DTI will
also work in partnership with UK universities to establish design
learning for science, engineering and business management
students, and develop design demonstration activity within
Technology Transfer Offices.
Increasing the
pull-through of
new ideas from
the SET base.
The Research Councils will make plans for increasing the rate
of knowledge transfer and interaction with business.
INNOVATION REPORT
Action plan
Paragraph
Lead and participating organisations
Timescale
2.10, 2.12,
2.13, 2.45
DTI, DfES, DWP, RDAs,
business schools
Skills Strategy ongoing to March
2006; Regional Skills Partnerships
from April 2004; Skills for Business
Network by Summer 2004;
curriculum material by March 2005;
CoVEs from April 2004.
2.47, 2.48
DTI, CBI, TUC
Increase/improve I&C ahead of
March 2005 deadline; establish
Taskforce in Spring 2004.
2.2, 2.19,
2.22, 2.23,
2.24, 2.25
SBS, DTI, DfES, RDAs,
Design Council
Advisory services from April 2004;
Management & Leadership
Programme Pathfinders in England
from January 2004.
2.52, 2.53,
2.54
SBS, DTI, RDAs
Draw up Action Plans with RDAs
and Business Link by summer 2004;
develop toolkit by Spring 2004.
2.33, 2.34,
2.35, 2.36,
2.38, 2.39
Design Council, DTI, HEIs, SBS, RDAs
April 2004 - March 2006.
3.16
OST, Research Councils, RCUK, DTI
From Spring 2004.
INNOVATION REPORT
129
130
Action Areas
Innovation Report Proposals
Increasing the
pull-through of
new ideas from
the SET base.
DTI will develop a Technology Strategy with business, the SET base,
other Government Departments, RDAs, and other stakeholders to
identify key technologies with future growth potential. DTI will
provide some of the funding and share some of the risks of pulling
through technologies in these key areas into the market. The
Technology Strategy will also provide a framework for Government
policy decisions, European programmes and RDA support for
science and innovation.
Capitalising on
our measurement
expertise.
Objectives for our National Measurement System will be developed
to include a greater focus on innovation. The NMS will increasingly
focus research programmes on measurements for emerging
technologies, working in line with the Technology Strategy, and
will work with industry to promote knowledge transfer through
(per annum) 15-25 co-funded research projects, up to 250 product
development projects, and 20 exchange secondments between
National Measurement Institutes and industry.
Encouraging
informed
management
and protection
of intellectual
property.
The Patent Office will develop a major awareness-raising
programme building on its Business Advice Open Days and
a new national strategy for dealing with IP crime.
Driving the
innovation
agenda across
Government.
Recognising the innovation challenge facing the UK, the Prime
Minister has asked the Secretary of State for Trade and Industry
to chair a Ministerial team to drive forward the innovation agenda
across Government.
Using
Government’s
purchasing power
to support
innovation.
We will identify how Government can procure innovative solutions
to both improve the quality of public services and support
innovation in businesses. The Office of Government Commerce will
produce best practice guidance on capturing creativity from
government suppliers, and DTI will work with DoH to trial innovative
procurement in two areas of the NHS: in the construction of new
hospitals; and in the adoption of telemedicine technologies.
DTI will reinvigorate the SBRI programme to encourage the
procurement of R&D from SMEs by Government Departments and
Research Councils.
INNOVATION REPORT
Action plan
Paragraph
Lead and participating organisations
Timescale
3.23, 3.36
DTI, Research Councils, RDAs, other
Government Departments, business
From Spring 2004.
4.6, 4.7,
4.8, 4.9,
4.11,
4.12
DTI, NPL, NEL, LGC, business,
RDAs, DAs
From April 2004.
4.20, 4.23,
4.27
Patent Office, Customs & Excise,
SBS, DAs, RDAs, and others
April 2004 - March 2005.
5.7
DTI, Cabinet Office, HM Treasury,
Other Government Departments
November 2003 - November 2004.
5.13, 5.19,
5.21, 5.22,
5.28
DTI, OGC, DoH, NHS Estates, SBS,
business
Guidance by March 2004; projects
with DoH from January 2004; SBRI
from April 2004.
INNOVATION REPORT
131
132
Action Areas
Innovation Report Proposals
Stimulating
innovation through
the regulatory
framework.
DTI will produce a guide for policy-makers to help identify the
impact of proposed regulations on innovation. DTI will lead a project
team to identify how environmental regulatory frameworks
(including voluntary measures) can be designed to encourage, rather
than stifle, innovation in three areas of regulation and several
industrial sectors. We will also continue to push for delivery of the
better regulation agenda in Europe.
Aligning national
and regional
innovation
strategies.
DTI will work in closer partnership with the RDAs to integrate
national and regional policy development and implementation
planning processes. This will include setting up Science and Industry
Councils or equivalent regional bodies. In the context of developing
new Public Service Agreement targets, we will agree a set of
national and regional innovation indicators.
Encouraging
regional growth
through
investment.
DTI will define the criteria for the new DTI product supporting
investment in the assisted areas so that the main objective is
the creation of sustainable, high-value investment and jobs rather
than simply maxmising the number of jobs.
Supporting
innovation in
the regions.
We will integrate innovation into regional business support delivery
mechanisms, building upon the Manufacturing Advisory Service
model to include access to innovation and design advice where this
is not explicitly provided already.
Encouraging
innovation through
international
collaboration.
We will take a number of measures to strengthen collaboration
between the scientific and technological expertise in UK-based
companies and expertise overseas. This will include increasing the
number of International Technology Promoters by a third and
doubling the number of outward industrial secondments, realigning
the delivery of UK Trade Investment trade services to better meet
customer needs, and increasing participation of UK businesses in
European and pan-European programmes such as EU Framework
and Eureka. UK Trade and Investment will take responsibility for the
international innovation agenda by ensuring that Government
coordinates its action in this area.
INNOVATION REPORT
Action plan
Paragraph
Lead and participating organisations
Timescale
5.33, 5.37,
5.38, 5.41
DTI, DEFRA, DfT, Cabinet Office,
EA, HSE
Best practice guide by Autumn
2004; environmental regulatory
framework project by Summer 2004.
6.20, 6.19,
6.21, 6.24,
DTI, RDAs, HMT, DAs, ONS
New PSA by February 2005; outline
set of innovation indicators by
March 2004.
6.33
DTI, RDAs
By April 2004.
6.36
DTI, RDAs, SBS, DAs
From April 2004.
7.33, 7.39,
7.14, 7.26
DTI and UKTI, with OST, RDAs, DAs
From April 2004.
INNOVATION REPORT
133
134
INNOVATION REPORT
Annex
INNOVATION REPORT
135
LINK Programme
136
List of LINK
programmes
LINK programmes open
to new project proposals
Biosciences/Medical
Electronics/
Communications/IT
INNOVATION REPORT
Applied Genomics
Bioremediation
Genetic and Environmental Interactions in Health
Health Technology Devices Programme
Integrated Approaches to Healthy Ageing
Sustainable Technologies Initiative
E-Science GRID Technologies
Information Storage and Displays
Mobile Phones and Health
People at the Centre of Communications
& Information Technology
Basic Technologies for industrial applications
Sustainable Technologies Initiative
Annex
List of LINK
programmes
LINK programmes open
to new project proposals
Energy/Engineering
Basic Technologies for Industrial Applications
Foresight Vehicle
Ocean Margins
Sustainable Technologies Initiative
The Innovative Manufacturing Programme
The Innovative Manufacturing Programme, of EPSRC, funds
a number of Innovative Manufacturing Research Centres,
each funded over five years. Eleven have been established
to date, and four more are planned. Within each centre
a number of projects will be carried out, and some of these
will operate under LINK rules.
The Centres will cover the following sectors:
Integrated Healthcare Technologies
Aerospace
Construction
Road Transport
Process Industries
Electronics.
Food/Agriculture
Materials/Chemicals
Manufacturing Molecules
Basic Technologies for Industrial Applications
Sustainable Technologies Initiative
Advanced Food Manufacturing
Earth Observation
Food Quality and Safety
Horticulture
Sustainable Arable Programme
Sustainable Livestock Production
Sustainable Technologies Initiative
INNOVATION REPORT
137
Faraday Partnerships
Today Faraday Partnerships bring together about 51 university departments,
27 independent research organisations, 25 intermediary organisations and more
than 2,000 firms large and small.
138
Faraday
Partnership
Description
Direct web link to the home page
of the Faraday Partnership
ADVANCE
Automotive and
aerospace materials.
www.faraday-advance.net
COMIT
Communications and mobile
information technology.
www.comit.uk.com
CRYSTAL
Green technology for the
chemical and allied industries.
www.crystalfaraday.org
EPPIC
Electronics and photonics
packaging and interconnection.
www.eppic-faraday.com
FIRST
Innovative remediation science
and technology.
www.firstfaraday.com
Food
Processing
Developing the underpinning
materials, equipment and
process knowledge applicable
to food processing.
www.pera.com/foodfaraday/index.asp
Genesis
Farm animal genetics
and genomics.
www.genesis-faraday.org
High Power RF
Industrial applications of high
power radio frequency
engineering.
www.powerfaraday.org.uk
Imaging
Digital imaging.
www.imagingfp.org.uk
IMPACT
Innovative materials
development and product
formulation by the application
of colloid technology.
www.impactfp.org
Industrial
Mathematics
and System
Engineering
Industrial mathematics and
system engineering.
www.smithinst.ac.uk
INREB
Integration of new and
renewable energy in buildings.
www.inreb.org
INNOVATION REPORT
Annex
Faraday
Partnership
Description
Direct web link to the home page
of the Faraday Partnership
Insight
High throughput technologies
for new product and process
development.
www.insightfaraday.org
Intersect
Intelligent sensors for control
technologies.
www.intersect.org.uk
Medical Devices
Providing a UK focus to the
area of medical devices.
www.medical-devices-faraday.com
Mini-waste
Novel technologies and
processes for the minimisation
of industrial waste.
www.mini-waste.com
Packaging
Practical innovation for fastmoving consumer goods
packaging, its manufacture
and supply.
www.faradaypackaging.com
Pinpoint
Global navigation satellite
systems (GNSS) applications.
www.pinpoint-faraday.org.uk
Plastics
Enabling research to meet the
critical technological challenges
of the plastics sector.
www.faraday-plastics.com
PRIME
Smart products (products with
inter-dependent mechanical
and electronic parts).
www.primefaraday.org.uk
Pro-Bio
Bio-catalytic processes for
manufacturing.
www.pro-bio-faraday.com
PowdermatriX
Rapid manufacturing through
powder processes.
www.powdermatrix.org
Smart Optics
Access to new optics
technologies.
www.smartoptics.org
Technitex
A focus for academic excellence,
industrial innovation and best
practice in technical textiles.
www.technitex.hw.ac.uk
INNOVATION REPORT
139
140
INNOVATION REPORT
Glossary of terms
INNOVATION REPORT
141
ACAS
Advisory, Conciliation and Arbitration Service
AGES
Attracting Global Entrepreneurs
AMP
Advanced Manufacturing Park
BAT
Best Available Techniques
BBA
British Bankers’ Association
BBSRC
Biotechnology and Biological
Sciences Research Council
BERD
Business Enterprise Research
and Development
DA
Devolved Administrations
DARP
Defence and Aerospace Research Partnership
DCMS
Department of Culture Media and Sports
DDA
Defence Diversification Agency
DEFRA
Department For Environment, Food and Rural
Affairs
DfES
Department for Education and Skills
BL
Business Link
DfT
Department for Transport
BLW
Business Link Wessex
DGRC
The Director General of the Research Councils
BRTF
Better Regulation Task Force
DoH
Department of Health
BSG
Broadband Stakeholder Group
DTC
Defence Technology Centre
BSI
British Standards Institution
BVCA
British Venture Capital Association
CAA
Civil Aviation Authority
Capex
Capital Expenditure
CBI
Confederation of British Industry
CF
Constant Frequency
142
CSL
Centre for the study of Language and
Information
DTI
Department of Trade and Industry
DWP
Department for Works and Pension
EA
Environment Agency
ECF
Enterprise Capital Funds
EEF
Engineering Employers Federation
EMDA
East Midlands Development Agency
CIS
Community Innovation Survey
EPSRC
Engineering and Physical Sciences
Research Council
CMI
Cambridge/MIT Institute
ERA
European Research Area
CO2
Carbon Dioxide
ERDF
European Regional Development Fund
COD
Chemical Oxygen demand
EU
European Union
CoVEs
Centres of Vocational Excellence
FCO
Foreign and Commonwealth Office
CPD
Continuous Professional Development
FDA
Factors’ and Discounters’ Association
CSEL
Centre for Scientific Enterprise Limited
FDI
Foreign Direct Investment
INNOVATION REPORT
Glossary of terms
FE
Further Education
LSC
Learning and Skills Council
GDP
Gross Domestic Product
MAS
Manufacturing Advisory Service
GEM
Global Entrepreneurship Monitor
MBA
Masters of Business Administration
HCRC
Human Communication Research Centre
MDF
Medium Density Fibreboard
HEBI
Higher Education Business Interaction
MNT
Microsystems and Nanotechnology Network
HEIF
Higher Education Innovation Fund
MoD
Ministry of Defence
HEIs
Higher Education Institutions
MPC
Monetary Policy Committee
HMT
Her Majesty’s Treasury
MRC
Medical Research Council
HSE
Health and Safety Executive
MS™
Microsoft
IC CAVE
International Centre of Computer Games and
Virtual Entertainment
MSSL
Mullard Space Science Laboratory
I&C
Information and communication
ICASS
Innovators and Counselling and Advisory
Service Scotland
ICT
Information and Communications Technologies
IDE
Industrial Design and Engineering
IGT
Innovation and Growth Team
IP
Intellectual Property
IPAC
Intellectual Property Advisory Committee
IPPC
Integrated Pollution Prevention and Control
IPR
Intellectual Property Rights
ISW
Inspire South West
JIF
Joint Infrastructure Fund
LEC
Local Enterprise Companies
LED
Light Emitting Diode
LGC
The former Laboratory of the
Government Chemist
NBAN
National Business Angel Network
NEL
National Engineering Laboratory
NGOs
Non-governmental organisations
NHS
National Health Service
NIAC
National Intellectual Asset Centre
NIST
National Institute of Standards and Technology
NMIs
National Measurements Institutes
NMS
National Measurement System
NPL
National Physical Laboratory
NSSF
National Standardisation Strategic Framework
NVQ
National Vocational Qualification
NWDA
North West Development Agency
NWML
National Weights & Measures Laboratory
NWSC
North West Science Council
ODPM
Office of the Deputy Prime Minister
INNOVATION REPORT
143
OECD
Organisation for Economic Co-operation and
Development
OFT
Office of Fair Trading
OGC
Office of Government Commerce
ONS
Office for National Statistics
OST
Office of Science and Technology
PACER
Proposal Assistance for Coordination of
European Research
PhD
Doctor of Philosophy
PSA
Public Service Agreement
PSRE
Public Sector Research Establishment
R&D
Research and Development
RCA
Royal College of Art
RCME
Regional Centres for Manufacturing Excellence
RCUK
Research Council UK
RDAs
Regional Development Agencies
RIF
Regional Innovation Fund
RSA
Regional Selective Assistance
RTOs
Research and Technology Organisations
S&T
Science and Technology
SBIC
Small Business Investment Company
SBRI
Small Business Research Initiative
SBS
Small Business Service
SE
Scottish Enterprise
SEIC
Systems Engineering Innovation Centre
SET
Science, Engineering and Technology
SET Base
Science Engineering and Technology Base
144
INNOVATION REPORT
SIC
Science and Industry
SIE
Scottish Institute for Enterprise
SME
Small and Medium Enterprise
SMF
Standard Mammogram Form
SPAF
Scottish Proposals Assistance Fund
SRIF
Science Research Investment Fund
SSDA
Sector Skills Development Agency
STEM
Science, Technology, Engineering and
Mathematics
TCS
Teaching Company Scheme
TGWU
Transport & General Workers Union
TME
Total Maintenance Engineering
TTOs
Technology Transfer Offices
TUC
Trades Union Congress
UCL
University College London
UfI
University for Industry
UKTI
UK Trade and Investment
UN
United Nations
US
United States
UK
United Kingdom
USA
United States of America
UTC
University Technology Centre
VAT
Value Added Tax
VF
Variable Frequency
VMS
Variable Message Signs
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Page 2
The DTI drives our ambition of
‘prosperity for all’ by working to
create the best environment for
business success in the UK. We
help people and companies become
more productive by promoting
enterprise, innovation and creativity.
We champion UK business at home
and abroad. We invest heavily in
world-class science and technology.
We protect the rights of working
people and consumers. And we
stand up for fair and open markets
in the UK, Europe and the world.
Steering Committee Members
Nick Baldwin
Energy Advisory Group Board
Robert Crawford
Scottish Enterprise
John Cridland
Confederation of British Industry
Anthony Dunnett
South East of England Development Agency
Mark Gibson
Business Group, DTI
Anne Glover
Amadeus Capital Partners Ltd.
David Hughes
Innovation Group, DTI
John Kingman
HM Treasury
Ron Loveland
Welsh Assembly
Roger Lyons
AMICUS
Geoffrey Norris
No. 10 Policy Directorate
Vicky Pryce
Chief Economic Adviser, DTI
Janice Shiner
Department for Education and Skills
John Taylor
OST, DTI
Joe Tidd
Science and Technology Policy Research,
University of Sussex
Caroline Whitfield
Innovation Group Advisory Board
INNOVATION REPORT
145
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INNOVATION REPORT
INNOVATION REPORT
Competing in the
global economy:
the innovation challenge
DECEMBER 2003
Competing in the global economy: the innovation challenge
Printed in the UK on recycled paper with a minimum HMSO score of 75.
First published December 2003. Department of Trade and Industry. http://www.dti.gov.uk/
© Crown Copyright. DTI/Pub 7035/2k/12/03/NP. URN 03/1607