Skills and Innovation: Research Reflections and an Initiative Professor Bruce Tether 17 th November 2008

Overview Part 1– Review of research on the Relationship between Skills and Innovation Part 2 – ”Design London” – A Multidisciplinary Initiative

Part 1: Literature Review - Questions Addressed How does Innovation Impact on the Demand for Skills? How does the Supply of Skills Impact on Innovation? What is the nature of the two-way relationship between Skills & Innovation? What are the Policy Considerations? What are the Research Gaps?

Context: UK Government - Five Drivers of Productivity Productivity (i.e., Value of Output per hour Worked) Innovation Skills Enterprise CompetitionInvestment

Innovation & the Demand for Skills Different types of Innovation … … have Different Implications for Skills … Process Innovation (through ‘Technical Change’) Generally reduces jobs and skill requirements as tasks become automated and simpler (& more amenable to relocation). Technical Change also interacts with Trade with lower skilled jobs move to the “Developing World” e.g., Dyson Appliances: Production to Malaysia, R&D etc still in UK

Innovation & the Demand for Skills Optimisation of new technologies (such as new information technologies) typically requires Organisational Change e.g., impact of computing played out through technological and organisational change (resolution of the Solow Paradox) “Skill Biased Technical and Organisational Change” in advanced open economies interactions between technical change, trade, organisational change and demand for skills has favoured those with higher and more adaptable skills, and disfavoured those with low, narrow and rigid skills

Innovation & the Demand for Skills Product Innovation typically creates jobs and requires higher skills, but the nature of these skills relates to type of industry, e.g. … Science Based Industries (e.g., Pharmaceuticals & Biotech). Key skills are ‘upstream elite’ Research Scientists in R&D. Engineering Product Based Industries (e.g., Machinery) Key skills are Design and Engineering Problem Solving Skills including strong Technical Skills amongst the Workforce Mass Market Industries (e.g., Food & Drink). Combination of ‘Scientific Management’ and Marketing is key. Consumer Services (e.g., Hotel and Leisure Services). Key skills are relational - Service Management, Soft Skills & ‘Emotional Labour’

Innovation & the Demand for Skills Growth of Services including Service Innovation Strategies in manufacturing is associated with Job Polarisation i.e., jobs requiring high and low level skills: McJobs and MacJobs Innovation in Services is typically less dependent on R&D & elite skills in science and engineering – More dependent on general workforce, organisational change & supply chain co-operations. Greater demand Relational Skills, incl. ‘Emotional Labour’ e.g., Care = Organisation + Physical Labour + Emotional Labour Soft Skills: communications, customer handling, team-working, problem solving, etc. (Qualifications in these are more difficult)

Supply of Skills & Innovation Empirical Evidence shows Lack of Skilled Labour is an Important (but not the only) Barrier to Innovation Including Different Types of Skills – workforce skills, marketing & sales skills, managerial skills And Different Levels of Skill – basic skills, technical and commercial skills, university graduates But also a Lack of Motivation to engage with innovation Overall, at firm-level, innovation performance is strongly associated with higher level skills (including both S&T and non-S&T graduates)

Supply of Skills & Innovation Supply of Different Types of Skills favours Different Types or Modes of Innovation... for example... 1.Innovation based on Small Elites e.g., ‘Science Push’ model of innovation based on small scientific & technological elites (in R&D, etc.). Pharm. is the classic example. Also, specialist manufacturing (e.g., Formula 1) and KIBS (e.g., consulting). UK has tended to do well in these industries. 2.Innovation through ‘Scientific Management’ e.g., US style mass production – functional division of labour. & more recent Japanese approaches to managing innovation Based on engineers with broad not highly specific knowledge bases Experience gained in production enhances continuous improvement & interlinks between management and workforce. UK poor at this.

Supply of Skills & Innovation 3.Workforce Skills and Distributed (or ‘Open’) Innovation Japanese / German approaches encourage workforce participation Specific skills built on strong education / vocational training systems e.g., superior ability of German textile workers with written instructions enables greater variety, small batch production, & high value added. c.f. UK workers: demonstrations  high volumes  compete on price. Impacts of Weak Managerial & Workforce Skills... 1.Firms tend to invest late in technologies Leads to competition on cost, not quality. 2.Make unattractive partners for “Open Innovation” 3.Firms can get trapped in a low skill equilibrium / a.k.a. the low product specification trap...

Interaction: Innovation & Skills Low Production Skills Weak Management Skills Demand for Low Specification Products + + Firms Supply of Low Specification Products (for Domestic Consumption) Firms have Little Demand for Higher Skills Low Supply of Higher Skills + Low Skill Equilibrium / Low Product Specification Trap + Firms Invest in Established (i.e., Mature) Technologies Competition on Price & Costs

Systemic Interactions: Innovation & Skills Supply of Science & Technology (& skilled S&T personnel) Quality of Demand Intermediate & Final INNOVATION PERFORMANCE Workforce Skills Quality of Competition Domestic and International Management Skills

Policy Considerations Need to Improve Workforce Skills, from the “Bottom Up” Workers need to engage with and be adaptable to innovation Also crucial is the ability to retrain in event of redundancy (UK has a high rate of inactivity amongst unskilled working age men) Education & Training for Generic, Adaptable Skills Beware the Qualifications Trap of excessive early specialisation Understanding theory raises the ability to learn and adapt Vocational training should incorporate theory (not be wholly practical) Combination of on-the-job and off-the-job / college base training. Training should not be controlled by Employers (short-termist) Also Need to Improve Management Skills Management plays crucial role in co-ordinating innovation Important role in raising the quality of intermediate demand

Policy Considerations Innovation is increasingly “Open” or Distributed Within Firms – growing importance of cross functional teams Between Firms – less likely that firms can innovate alone, … … more likely that they need to collaborate for innovation Do managers know with whom and how to collaborate for innovation? Increasing importance of social or relational capital alongside ‘hard scientific forms of knowledge’ Consider the Orientation of the Science Base Under-utilisation of SB reflects weakness in industry (Lambert review) UK and European economies increasingly dominated by services – but arguably low relevance of much ‘hard science’ to service IBM’s ‘Services Science’ initiative is a call to arms

Part 2: Design London: An Educational Innovation Was established following the Cox Review We focus on Recombinant Innovation Our Mission is... …to broaden the understanding and skills of tomorrow’s business leaders, creative specialists, engineers and technologists The challenge [is] … get business people, engineers, technologists and designers to understand one another Cox Review: Creativity in Business

Desirability Part 3: Design London – A Triangle for Innovation The Royal College of Art (RCA) Imperial College Faculty of Engineering Imperial College Business School Commercial Viability Technical Feasibility

Research the role of design methods, tools and practices on business value creation Incubate new ventures and talent to demonstrate the power of the new model Pioneer technologies to enable high performance innovation Deliver interdisciplinary teaching to post- graduate students and industry Part 3: Design London – Four Pillars