Science and innovation Science, innovation and economic performance: DTI perspective Ray Lambert Innovation Group Department of Trade and Industry

Science and innovation 2 Productivity is important for prosperity for all DTI vision of productivity for all: –Increased productivity creates wealth and potential for higher living standards/better public services –Also need sustained high employment –Alongside: Fairness for consumers, employees Environmental sustainability Secure energy supply

Science and innovation 3 UK productivity record is unimpressive though signs of improvement … Slow UK productivity growth long-term problem UK lags behind much of G7 Recent signs of improvement Gap greatest for per hour worked measure

Science and innovation 4 UK productivity target HM Treasury/DTI Public Service Agreement Narrow productivity gap with UK, France, Germany averaged over the cycle Macroeconomic stability, microeconomic reforms Five driver framework: –Investment –Skills –Competition –Enterprise –Innovation

Science and innovation 5 What is innovation?  Innovation has many dimensions including: applications of science, technology; change through applied creativity and design;new products, services and processes; new business practices.  for example:  mobile phones - new product  NHS Direct - new service  Amazon.com - new business process  Asda “best company to work for” - inspiring people  is market driven  science and technology provide strategic options

Science and innovation 6 Innovation as a source of productivity: gap with US, France, Germany 1999 Source: Crafts and O’Mahoney (2001).

Science and innovation 7

8 UK has invested less than major competitors in R&D … R&D is a measure of investment in technology-based innovation. But Less relevant for much of service sector. Relative position on patenting – another technology-based measure – is similar. More encouraging record on non- technology based process innovation and on other forms of IP protection (e.g. UK one of major users of copyrights and registered designs). Hence 2 reviews of the role of design and creativity in the economy, announced by the Chancellor in the budget.

Science and innovation 9 Innovation takes place in complex systems Education & Training system Suppliers (firms) Government: Central Regional Europe/global Business Competitors Collaborators Customers: Other firms End consumers Public sector Intermediaries Science base: Universities Public sector External financiers: Banks Markets People Skills Demand Finance Knowledge People Demand Taxes Contacts Finance Regulatory framework Intellectual Property protection Standards Economic environment Knowledge People Knowledge People Knowledge People Knowledge People Demand Investment finance Return

Science and innovation 10 Agenda for business Long-term investment in R&D, skills, implementation Create a culture receptive to new ideas in and out of company Complexity of managing innovation

Science and innovation 11 Agenda for employees Alertness to new opportunities and improvement Develop partnership culture Innovation has challenges – and opportunities

Science and innovation 12 Agenda for the research base Balance between researcher-driven and user-relevant research? Incentives for researchers to seek exploitation opportunities Seek out and welcome business collaborators Produce people with the skills needed for innovation

Science and innovation 13 Agenda for government Get the framework right Supply public goods and infrastructure Provide incentives for public bodies Support for businesses when market failures demand it Look to other policies to be enablers not barriers to innovation

Science and innovation 14 Policy success stories Macroeconomic stability Increased investment in scientific research Competition National innovation assets

Science and innovation 15 Continuing challenges Businesses taking those first steps (especially SMEs) Business investment in innovation Workforce skills University engagement with the business world Joining up policies across government

Science and innovation 16 Which are the focus of recent policy reviews … Lambert Review of university-business links DTI Innovation Report “Competing in the Global Economy – The Innovation Challenge” HMT/DTI/DfES 10 year funding framework for science and innovations

Science and innovation 17 Lambert Review of university-business links Critical interface in innovation system – especially for science/technology based businesses; 17% of businesses make direct use of university science base as a knowledge source; 55% make indirect use; Those who do collaborate more likely to say they are improving quality of goods and services (82% versus 42%); Proximity matters for some firms: SMEs/firms with mainly local markets tend to interact with local universities.

Science and innovation 18 Lambert: Conclusions and key recommendations Signs of a change in culture but … Need to engage more businesses with universities. Make “third stream” funding permanent. Simplify IP negotiations. Additional funding for business-relevant University research (see under 10 year framework).

Science and innovation 19 DTI Innovation Report 2003: “Competing in the Global Economy – The Innovation challenge” Trade liberalisation, fall in communication and transport costs = increased difficulty of competing with low wage and well educated labour forces. Technology and scientific understanding increasing faster,increasing scope for innovation. Global communications mean consumer tastes and desires (fashion, ideas, products,services) spread more rapidly. = urgent challenge for the UK to stay ahead of the game

Science and innovation 20 The economic message UK Businesses will only achieve long-term success in global markets by focusing on greater value added as their competitive edge. Innovation is the key to achieving this. And Businesses need to keep innovating to stay ahead of the competition.

Science and innovation 21 Technology Strategy and knowledge transfer Technology Strategy: Business-led identification of technology priorities used to direct DTI funding Informed by developments in international research base but focussed on business-pull Clear criteria to identify the priorities, and regularly review them – e.g.: long term potential – UK capability to exploit results – strength of supporting science and engineering base – Government policy priorities (e.g. Healthcare, Transport) Knowledge transfer: new goals to increase rate of knowledge transfer and level of interaction between science and business.

Science and innovation 22 Public procurement and cross Government role Create procurement culture that recognises innovation in delivering value for money Investigate opportunities for and barriers to innovation in key public sector markets and examine how procurement could facilitate innovation includes: – Improve Small Business Research Initiative(SBRI) – NHS estates and telecare pilots. Promote regulation that focuses on outputs required, not detail of process.

Science and innovation 23 Promoting innovation in Small Businesses Measures to enable more small businesses to realise innovative capability - better innovation advice Business Link to provide a more tailored service to innovative SMEs Management training for SME leaders Help for SMEs to access IPR and measurement services SBRI – modelled on US SBIR – designed to give SMEs access to research procurement – to be given higher profile in UK.

Science and innovation 24 Regional Innovation Proposals Strengthen Regional Development Agency and Government interaction on strategy and delivery Expand role of RDAs in stimulating business/university interaction Focus Regional Selective Assistance more on high- value added investment [capital subsidy for investment in disadvantaged areas] Encourage regional “Science and Industry” Councils, linked to national policies – fora at regional level for business and universities Expand Manufacturing Advisory Service to include innovation and design – hands on expert advice for businesses.

Science and innovation 25 Management & Skills Support and reinforce 2003 Skills Strategy: – more central role for employers in decisions on public funding of skills. – solutions to skills gaps, e.g. in new technologies, tapping into international labour markets – improve management of innovation and design Promote understanding and use of design, engineering and technology among corporate management.

Science and innovation 26 HMT/DTI/DfES 10 year review of funding framework for science and innovation Policy objective of total R&D as 2.5% of GDP in 10 years. Acceleration of trends in recent years. Continued real increases in science budget. Expansion of knowledge transfer. Big challenge to raise business investment in R&D.

Science and innovation 27 HMT/DTI/DfES 10 year review of funding framework for science and innovation Role for Regional Development Agencies in helping stimulate business- university interaction, especially for SMEs. Challenge of STEM skills: reversing decline in student numbers, making better use of skills in industry.

Science and innovation 28 Cox Review. Science and technology are not the whole of innovation, especially in service sectors. UK creative industries have been amongst the strongest and fastest growing in recent years. Is this strength carried over into the application of design and creativity in other sectors. Chancellor commissioned George Cox, an experienced business leader, currently chairman of the Design Council, to review this question. He is currently preparing a report.

Science and innovation 29 What will success look like? More companies producing more new products and services, and developing more business processes, thereby continuously increasing value add. Higher rate of commercialisation of research to better meet business need. Improved, streamlined Government support for innovation linked to national technology objectives agreed between business, research community and Government. UK to be leading major country in Europe within ten years in terms of business R&D and patenting. The innovation agenda being driven forwards in all regions through effective partnerships.

Science and innovation 30 Topics for discussion: What can be done to … Curriculum integration : Sir George Cox is likely to recommend more integration of creative/design disciplines with science and technology disciplines in Higher Education - how can this be achieved? Knowledge transfer : How can we exploit better the knowledge generated in the HEI base, through partnerships and collaboration eg with businesses and RDAs? SMEs: How can Universities engage better with small and medium sized businesses.