Innovating to Grow

Innovation is the development of new products, services and processes, which may be based on cutting edge research. Improving the UK’s innovation performance is an essential component of the Government’s growth plan.

A large body of evidence shows that innovative economies are more productive and faster growing1. They deliver higher returns on investment and increased living standards. They are better at responding to changing circumstances through redeploying old activities and jobs. They are more able to find solutions to global challenges such as reducing dependence on fossil fuels, helping people live longer and healthier lives.

UK businesses have to invest more in innovation activities to grow. Innovative businesses grow twice as fast, both in employment and sales, as businesses that fail to innovate 2.

Innovation will drive the competitiveness of our businesses in the global economy. In technology-based sectors, research is a primary driver of innovation, and research can also discover and exploit new technologies, sometimes giving rise to new industries.

In other sectors the rapid adoption of technologies and the development of intangible assets are essential to innovate, sometimes transforming existing industries.

 

1.1 This strategy sets out the Government’s approach to boosting business investment in innovation and ensuring UK success in the global economy. Universities and research, entrepreneurship and risk taking, greater connections between people and organizations, and a more open environment will all be at the heart of our approach.

The economic thinking underlying this policy paper is in the Economics Review ‘Innovation and Research Strategy for Growth’, also published by BIS today. Unless indicated otherwise figures in this document are presented in this Review.

2 For instance in ‘The vital 6 per cent.’ (2009), NESTA. NESTA econometric analysis shows that firms that had introduced a product innovation in 2002-04 experienced a 4.4 per cent average employment growth rate between 2004-07, in contrast to the 2 percent average growth rate displayed by non-innovators. And the figures are 10 per cent and 5.8 per cent respectively if we consider sales growth.

 

Innovation and Research Strategy for Growth

 

1.2 We will invest in critical areas that only government can fund and we will support innovation across the economy:

Fostering scientific and technological breakthroughs is a fundamental role of government. Both “blue skies” and applied research lead to the industries of the future, better health and quality of life. We will continue to invest in curiosity driven research in universities and the wider knowledge base. As well as being worthwhile in its own right, this will help us to attract the best researchers, enable our universities to build their capabilities, train future researchers and those who will work in our knowledge intensive industries. We will priorities our investments in emerging technologies that have wide application, where the UK has relevant scientific and commercial strengths and where global markets are growing, helping create the enterprises of the future. We will also support multidisciplinary programs linked to global challenges, and invest to support business R&D and those technology-based sectors where the UK has existing strengths. (Chapter 2: Discovery and Development)

 

Developing emerging technologies is essential but insufficient. The growth of the UK economy depends on the extent to which businesses in all industries and services invest in adapting technologies and developing their own complementary non-technical innovations. This increasingly encompasses investing in intangible assets, from skilled human resources to new business models, design and branding. We will nurture innovation in all its forms. (Chapter 3: Innovative Businesses)

 

Strong connections between key actors in the innovation system are instrumental to create and disseminate knowledge, and improve our success rate in building high-growth businesses. How businesses access the UK’s research and information infrastructure – its facilities and knowledge base – is paramount.

We will encourage stronger links through network initiatives between entrepreneurs, researchers and experts in design, intellectual property, measurement and standards. (Chapter 4: Knowledge and Innovation)

1.3 We will establish an open environment where the most promising ideas are rewarded:

 

Open innovation means harnessing new knowledge wherever it comes from. UK businesses and research institutions already have strong partnerships with the USA and the EU, which we will reinforce. But the geography of innovation is changing. Fast growing economies like China and India offer new opportunities for both business and scientific co-operation. (Chapter 5: Global Collaboration)

 

 

Innovation and Research Strategy for Growth

? Innovation must occur in all parts of our society. We will make data and research findings widely available online for anyone to remix and reuse, and use inducement prizes and challenge-led innovation to solve tough problems. The Government will also encourage UK innovation as a customer of new products and through delivering public services. (Chapter 6: New Innovation Challenges) UK Innovation and Research

1.4 The UK possesses the ingredients for success. We have excellent universities and research institutions and dynamic businesses:

Our science and research base is world-class and a crucial asset. UK universities train a large number of graduates and postgraduates and host a very large number of international doctoral students across a wide range of disciplines. We have a strong base of research-active universities, with 4 of the top 20 universities in the world, and 32 universities in the top 2003.

?Our research institutes include world-leading facilities which combine flexibility to pursue innovative research with a unique environment for developing outstanding students and early career researchers.

?Our excellence in teaching and research is underpinned by institutions with a global reputation, such as the British Standards Institution, the UK Accreditation Service, the National Physical Laboratory, and the Intellectual Property Office.

? Our R&D intensity in high tech industries such as pharmaceuticals, aerospace and information and communication technologies is comparable with industries in key competitor nations. However, UK R&D is more concentrated in a relatively small number of sectors by relatively few businesses. Greater business investment in R&D is needed across all sectors of our economy.

? Our businesses invest in broader innovation such as branding, training, design and improvements in business process. These intangible investments are new sources of growth, and our high-growth businesses are not just high-tech companies but also logistics providers, facilities managers, professional services firms and manufacturers.

 

Global Innovation and Research

 

1.5 Other countries understand that innovation is fundamental to economic success.

Despite marked differences between national innovation systems, some countries – like the USA (the world’s most innovative economy), Japan and Germany–innovate more effectively than others. Scale confers advantage, yet much smaller  3 Times Higher Education World University Rankings (2011-12). Innovation and Research Strategy for Growth countries – like Sweden – also perform strongly (see boxes: Global Innovation Leaders).

 

1.6 Fast growing economies like China, Brazil or India are rapidly raising their game.

China, for instance, is set to become the second largest recipient of foreign direct investment in the world and is already the second largest investor in R&D after the USA4. In the BRIICS countries (Brazil, the Russian Federation, India, Indonesia, China South Africa) high-technology manufacturing trade now represents 30% of their total manufacturing trade, compared to 25% for the OECD area. New scientific hubs have been created over the last decade, for instance in Seoul, Shanghai and Sao Paulo. Some universities in Asia, such as the Hong Kong University of Science and Technology, are emerging as leading research institutions.

 

1.7 Many factors influence the effectiveness of any innovation system: governance regime; taxation and regulation of enterprise, and their access to finance; size of manufacturing base; organization of the university sector; levels and orientation of government-funded research; and the role and weight of different public institutions. Industrial and technological specializations also differ between countries, because of different historical circumstances.

 

1.8 The most successful national systems, however, share common characteristics. They exhibit an ability to generate long-term and risky investment at scale for new ideas, both public and private. These new ideas are the result of relationships among people producing, sharing, applying and developing various kinds of knowledge through cohesive networks. These networks also allow them to engage with international collaborators and adopt innovations that emerge elsewhere in the world. Their Governments, delivery bodies and agencies take a leadership role. They develop technological capabilities through funding research and R&D. They actively support strong collaborations between actors and take investment decisions on research and technological priorities, and institutional frameworks as well as education, regulation and infrastructure provision.

 

1.9 The UK is engaged in an increasingly competitive global market. Scientific research, technology development, industrial production, financial capital flows, and skilled people are more mobile than ever. Our ability to thrive in this environment depends in large part on the effectiveness of our own innovation system; how we design it and how we choose to invest in it.

All figures in this section are from OECD Science, Technology and Industry Scoreboard (2011).

Innovation and Research Strategy for Growth

 

1.10 The following chapters describe our plans to make sure that business in England, Scotland, Wales and Northern Ireland benefit from operating in an innovative global economy5.

 

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