global economy: competing in the/http:/ · 1. competing in the global economy dramatic moments in...

INNOVATION REPORT

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

INN

OV

AT

ION

RE

PO

RT

Com

peting in the global economy: the innovation challenge

Innovation_Cover 12/12/03 3:22 PM

Steering Committee Members

Nick BaldwinEnergy Advisory Group Board

Robert CrawfordScottish Enterprise

John CridlandConfederation of British Industry

Anthony DunnettSouth East of England Development Agency

Mark GibsonBusiness Group, DTI

Anne Glover Amadeus Capital Partners Ltd.

David HughesInnovation Group, DTI

John Kingman HM Treasury

Ron LovelandWelsh Assembly

Roger Lyons AMICUS

Geoffrey Norris No. 10 Policy Directorate

Vicky PryceChief Economic Adviser, DTI

Janice ShinerDepartment for Education and Skills

John TaylorOST, DTI

Joe TiddScience and Technology Policy Research,University of Sussex

Caroline WhitfieldInnovation Group Advisory Board

INNOVATION REPORT 145

The DTI drives our ambition of‘prosperity for all’ by working to create the best environment forbusiness success in the UK. Wehelp people and companies becomemore productive by promotingenterprise, innovation and creativity.

We champion UK business at homeand abroad. We invest heavily inworld-class science and technology.We protect the rights of workingpeople and consumers. And westand up for fair and open markets in the UK, Europe and the world.

Innovation_Cover 12/12/03 3:22 PM

INNOVATION REPORT 1

ContentsForeword ...................................................................................3

Introduction ............................................................................5

Overview...................................................................................7

Chapter 1The innovation challenge .....................................17

Chapter 2High performance innovative companies...............................................31

Chapter 3Technology innovation.............................................51

Chapter 4National innovation assets..................................69

Chapter 5Innovation policies across Government ....................................................79

Chapter 6Regional innovation.....................................................97

Chapter 7Global links .........................................................................113

Action plan..........................................................................127

Annex........................................................................................135

Glossary of terms.......................................................141

Steering Committee Members ..............................................................................145

INNOVATION REPORT2

INNOVATION REPORT 3

The creativity and inventiveness of ourpeople is our country’s greatest asset andhas always underpinned the UK’s economicsuccess. But in an increasingly globalworld, our ability to invent, design andmanufacture the goods and services thatpeople want is more vital to our futureprosperity than ever.

Innovation, the exploitation of new ideas, is absolutely essential to safeguard anddeliver high-quality jobs, successfulbusinesses, better products and servicesfor our consumers, and new, moreenvironmentally friendly processes. There are many British companies whohave risen to this challenge and reaped therewards for their vision. Those British-based manufacturing industries that haveinvested heavily in Research andDevelopment (R&D) have, in recent years,competed successfully in the globaleconomy and have grown faster than theeconomy 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 manyof our firms have failed to put enoughemphasis on R&D and developing skills.

We have been working hard to put thisright. Over the last six years, theGovernment has put the right foundations

in place through a huge investment in ournation’s science base, the platform ofmacro-economic stability and support forenterprise, skills and knowledge at thecentre of our policy making.

We now need to go further. The challenge –set out in this important report – is tocreate the conditions where all our firmsput innovation at the centre of theirstrategies for the future. Government can’tdo this alone. We need to work withindustry, trade unions, employees andconsumers. 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 innovationagenda across the whole of Governmentand drive forward the implementation of this report.

We want the UK to be a key knowledgehub in the global economy, with areputation not only for world-classscientific and technological discovery butalso for turning that knowledge into newand profitable products and services. This report sets out the next steps we aretaking to turn that vision into a reality.

Foreword

Rt. Hon. Tony Blair, Prime Minister

INNOVATION REPORT4

INNOVATION REPORT 5

A year ago I was asked by the Secretary ofState for Trade and Industry, PatriciaHewitt, to review the Government’s policieswhich impact on innovation. She saw theneed to raise our level of productivity andposition ourselves to compete effectivelyagainst the low-wage, newly-emergingeconomies and this means that a stepchange is required in our rate ofinnovation. This report of our work hasbeen produced in close partnership withindustry, the Trade Unions and ouruniversity and research institutes, who arein the best position to know how we cancompete in global markets.

If we are to be able to competesuccessfully against the most dynamicindustrial economies in the world, it is notenough to open up our markets tocompetition, though this is an essentialfirst step. It is also necessary for theGovernment to provide the significantrange of public goods which are necessaryfor a knowledge-driven economy to createcompetitive advantage, such as a strongscience and technology base, incentives forknowledge transfer and business Researchand Development (R&D), and highstandards of education at all levels. Only inthis way can we provide opportunities forall those who want to innovate and createnew businesses, whatever their jobs and inwhatever region of the country they work.

We have already put in place many of thefoundation stones of a successfulknowledge economy, and the case studiesin the report show what can be done byinnovative and dynamic companies, largeand small. But in the fast-moving world inwhich we live, we need to constantlybenchmark ourselves against the best,learn from other countries, and increasethe effectiveness of our policies.

As Patricia Hewitt has made clear, ourvision is that we should be a key hub in theglobal knowledge economy. This meansthat the UK should be a country famed notonly for its outstanding record of discoverybut also for innovation, a country thatinvests heavily in business R&D andeducation and skills, and exports high-techgoods and services to the world. We alsowant to be a country with strong scienceand technological links with the bestresearch around the world, so that we canstay always at the leading edge. Finally, weshould be a country to which talentedentrepreneurs and world-class companiescome from around the world to doresearch and set up high-tech companies,attracted by the quality of our research, by the strong links between universities,research institutes and industry, bygeographic clusters of high-tech companies,by their ability to raise finance, particularlyventure capital, and by our quality of life.

Introduction

Lord Sainsbury, Minister for Science and Innovation

INNOVATION REPORT6

INNOVATION REPORT 7

Overview

1. Competing in the Global Economy

Dramatic moments in the history ofindustrial change have always beencharacterised by the successful exploitationof new ideas and the achievements ofinnovators.

Innovation has driven economic progress,from the invention of the spinning jennythat transformed the textile industry duringthe 18th century, to the harnessing ofelectricity and the development of massproduction. More recently, semi-conductors,the internet and mobile technology haverevolutionised business performance andthe economic potential of nations.

Today, there are three reasons whyinnovation is even more urgent forcompanies and countries:

� trade liberalisation and a rapid fall incommunication and transport costsmean that the UK must increasinglycompete against countries with muchlower labour costs and well-educatedlabour forces. Wages in China are lessthan 5% of those in the UK. Labour costsin Korea are just over half UK levels, andthe proportion of graduates in theworking age population is almostidentical;

� technology and scientific understandingare changing our world faster than everbefore. Developments in Information and Communications Technologies (ICT),new materials, biotechnology, new fuelsand nanotechnology are unleashing new waves of innovation, and creatingmany opportunities for entrepreneurialbusinesses to gain competitiveadvantage; and

� global communications, the 24 hours, 7 days of the week media phenomenonof the 21st century, mean that consumertastes are also changing faster, as newfashions, ideas and products spreadacross the world almost instantaneously.

These developments are occurring at aspeed and on a scale never seen before. In the past, many UK-based businesseshave prospered even when selling in lowvalue markets, but today British industryfaces a new challenge: how to raise its rateof innovation?

Professors Michael Porter and ChristianKetels of Harvard University haverecognised this challenge, describing how“the UK currently faces a transition to anew phase of economic development.”

“We find that the competitiveness agendafacing UK leaders in Government andbusiness reflects the challenges of movingfrom a location competing on relatively lowcosts of doing business to a locationcompeting on unique value and innovation.This transition requires investments indifferent elements of the businessenvironment, upgrading of companystrategies, and the creation andstrengthening of new types of institutions1.”

2. Why Innovation is Important

We define innovation as “the successfulexploitation of new ideas”. Often itinvolves new technologies or technologicalapplications. Innovation matters becauseit can deliver better products and services,new, cleaner and more efficient productionprocesses and improved business models.

For consumers, innovation means higherquality and better value goods, moreefficient services (both private and public)and higher standards of living.

For businesses, innovation meanssustained or improved growth. Theinnovative company or organisationdelivers higher profits for its owners andinvestors. For employees, innovationmeans new and more interesting work,

INNOVATION REPORT8

1 DTI Economics Paper, “UK Competitiveness: Moving to theNext Stage”, (May 2003) http://www.dti.gov.uk/economics

better skills and higher wages. Equally, anabsence of innovation can lead to businessstagnation and a loss of jobs.

For the economy as a whole innovation isthe key to higher productivity and greaterprosperity for all.

Innovation will also be essential formeeting the environmental challenges ofthe future – including moving to a lowcarbon economy and reducing waste. We need to find new ways to break the linkbetween economic growth and resourcedepletion and environmental degradation.

It is important to every sector of oureconomy, in both manufacturing andservices. To hold our own in modernmanufacturing we will need to innovatestrongly, creating new high-techmanufacturing industries such asbiotechnology and upgrading traditionalsectors such as steel and textiles.

While British-based manufacturing facesthreats from developing economies,advances in science and technology alsooffer many opportunities. In the last tenyears, the chemicals (includingpharmaceuticals), computers and officeequipment and communication sectorshave all grown faster than the economy asa whole. And even within sectors that havesuffered overall decline there are sub-sectorswhere companies have grown and prosperedby focussing on unique value and innovation. What characterises these success stories isthat they tend to have relatively high inputsof research and development (R&D) andskilled labour forces, as Table 1 shows.

At the same time we need to raise the levelof innovation in our service industries, ifwe are to meet the challenges posed by theoutsourcing of low – value addedadministrative jobs to developing nations.Services accounted for 56% of GDP in 1981and 72% in 20012. Our productivity inservices is no better than in manufacturing

Overview

INNOVATION REPORT 9

Table 1Output growth, R&D and skills inputs by manufacturing sector

Average annual R&D as percentage Percentage ofpercentage of value added employeesgrowth (average with degrees 1991-2001 1991-2000)

Electrical and optical 5.5 6.6 18.8

- of which computers & 16.1 5.5 27.5office equipment- communication equipment, 6.4 12.9 20.9TV, radio

Chemicals & man made fibres 3.1 18.5 26.4- of which pharmaceuticals 6.6 44.2 n/a

Plastic and rubber products 1.4 0.8 7.5

Food, drink & tobacco 0.4 1.1 8.1

Textiles -4.0 0.4 <8.5

Manufacturing total/average 1.0 7.0 12.9

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.

when compared with our major competitors.Technology is being used increasingly inareas such as retail banking and computergames to improve business processes andcustomer service, while almost a fifth ofbusiness Research and Development (R&D)expenditure today takes place in services.

3. The UK’s InnovationPerformance

The UK is one of the world’s most opentrading nations and our consumers canenjoy 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 fallcompared with other countries.

We already have some sectors that lead the world in innovation: aerospace,pharmaceuticals, biotechnology, financialservices and many of the creativeindustries; and there are some firms inalmost all sectors that are global leaders.However, overall, our performance is notgood enough. Although there is no singleindicator of innovation, two measures oftechnological innovation – business R&Dand patenting – show the UK’sperformance is only average comparedwith our international competitors.

The latest international comparisons ofdata on business R&D (Table 2) show theUK well behind the US and roughly equalto the EU average. However, it isencouraging that after a steady period ofdecline from 1.5% of GDP in 1981 to 1.16%in 1997, we have seen a move in the rightdirection to 1.24% in 20023.

Measures of patents filed in Europe, Japanand the US provide an indicator of thosepatents judged most valuable by theircreators. On this indicator, adjusting forsize of the economy, UK patenting lies wellbehind that of Japan and the US, andslightly behind the EU average. As the latestfigures we have are for 1998, it is not possibleto see what the trend has been since then.

4. The Role of Government

Innovation ultimately depends on theknowledge, skills and creativity of people atwork, but Government has an importantrole to play in creating the best possibleconditions for innovation, and developingthe significant range of public goods thatare essential for a dynamic and innovativeknowledge economy, including a strongscience, engineering and technology base,incentives for knowledge transfer, and higheducational standards.

INNOVATION REPORT10

Table 2Expenditure on business R&D as a percentage of GDP, 1992-2001

1992 1997 1998 1999 2000 2001 2002

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 1.75

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 1.24

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 2.06

OECD* 1.49 1.48 1.49 1.53 1.56 1.62

*Most recently available figures are for 2002.Source: OECD/ONS

3 OECD, Main Science and Technology Indicators (May 2003).

The innovation challenge has been a cleartheme of policy-making since 1997. In thattime we have published three WhitePapers: “Our Competitive Future – Buildinga Knowledge Drive Economy” (1998);“Excellence and Opportunity – A Scienceand Innovation Policy for the 21st Century”(2000); and “Opportunity for All in a Worldof Change – Enterprise, Skills andInnovation” (2001).

These new policies are already beginningto produce results. For example, since 1997we have seen a significant cultural changein the relationship between the universitysector and industry. In 2000/2001 therewere 248 spin-off companies from BritishUniversities compared with 203 in theprevious year and 70 a year, on average, in the 5 years before that4. The number ofIntellectual Property (IP) licences granted to UK-based companies, based on HigherEducation Institutes’ IP, increased by 38% from 382 in 1999/2000 to 527 in2000/2001, while total new (initial) patentsfiled rose by 26% from 725 to 913 over the same period.

UK companies will have to compete morein the future on unique, high value-addedand innovative products and services. This will require inspirational leadership,stronger management and leadershipskills, a highly skilled workforce, a flexiblelabour market that promotes diversity andfair treatment, and high performanceworkplaces.

The Government’s Skills Strategy, “21stCentury Skills: Realising Our Potential”(published in July 2003), makes clear thatwe have many strengths in the way inwhich we develop skills, learning andqualifications in this country. Thanks to our recent reforms, our young peoplecompare well internationally in theirliteracy, numeracy and science skills. We are as good at developing highly skilledgraduates as the best in the world.

But it remains the case that French,German and US workers produce betweena quarter and a third more in every hourthey work than their British counterparts.A highly educated workforce with a culture

of lifelong learning is more likely to adaptto economic change and, as our SkillsStrategy makes clear, improving skillslevels across the board, particularly amongthose with the lowest skills levels, is afocus for the Government’s agenda forenhancing flexibility across the UK.

The Skills Strategy sets out theGovernment’s agenda for acting on boththe demand for, and supply of, skills as amajor contributor to improving levels ofinnovation and productivity. It commits theGovernment to creating a more demand-led, responsive and flexible training systemdelivered through:

� the Skills Alliance, jointly chaired by theSecretaries of State for Trade andIndustry and Education and Skills;

� the joint Department for Education andSkills (DfES) and DTI Leadership andManagement Unit;

� the joint DfES and DTI sponsored Skillsfor Business Network of Sector SkillsCouncils leading the development ofSector Skills Agreements; and

� Regional Skills Partnerships – which willbring together activities on regional andsectoral skills priorities, training,business support and labour marketactivity in support of regional economicstrategies.

This report builds on the policy themes ofthe previous White Papers: the need for the improved funding of science, incentivesfor knowledge transfer, the development of innovation-driven regional strategiesand clusters, improving knowledge andskills, and the international battle for talent.

To improve our innovation performance, a major cross-government initiative isrequired. The DTI and the Office of Science

Overview


4 Higher Education Business Interaction Survey;http://www.hefce.ac.uk/pubs/hefce/2003/03_11.htm

and Technology (OST) have a key role toplay but wider actions across a range ofGovernment Departments are necessary ifwe are to achieve the best possibleconditions for innovation. If real change isto be achieved then innovation mustbecome embedded in the thinking of alldepartments and agencies, and there mustbe greater collaboration between them.

In addition to the £2.3 billion of R&Dfunded by the OST, and the HigherEducation Funding Councils, GovernmentDepartments including the NHS fundedover £4.5 billion of R&D5. This means thatthere are substantial opportunities forcollaboration across Government,particularly in knowledge transfer tobusiness. The public sector, whichpurchased £109 billion of goods andservices in 2001/026, also has hugepotential to stimulate innovation by actingas an ‘intelligent customer’. As theEuropean Commission Report ‘Raising EUR&D Intensity’7 said: “The boost toinnovation derived from defence spendingin the USA could be matched in Europe by innovation-orientated procurement inhealth and public security”.

Furthermore, Government can helpthrough its sponsorship of particularindustries and by drafting outcome-basedregulations that promote, rather thanrestrict, innovation.

Recognising the innovation challengefacing the UK, the Prime Minister hasasked the Secretary of State for Trade andIndustry to chair a Ministerial team to leadthe innovation agenda across Governmentand drive forward the implementation ofthis report.

5. What we will do

We want the UK to be a key knowledgehub in the global economy, with areputation not only for outstandingscientific and technological discovery, butalso to be a world leader in turning thatknowledge into new and exciting productsand services. In terms of business R&D and patenting we will aim to be the leadingmajor country in Europe within ten years.

In developing our analysis and drawing upproposals, we have consulted widely withbusinesses, successful entrepreneurs andinnovators, trade unions, academic andbusiness experts, DevolvedAdministrations (DAs), and RegionalDevelopment Agencies (RDAs). We alsolooked closely at international experienceand the lessons learned by othereconomies seeking to raise their rate ofinnovation.

We have already laid the foundations of an innovation economy in areas such asmacro-economic policy, fiscal policy,competition policy, trade policy andeducation and skills. But there are othermeasures that directly bear on innovationwhere Government needs to do more,taking forward our programme of micro-economic reform.

This report sets out a strategy forinnovation that will be backed by theresources of the DTI, the RDAs and otherrelevant parts of Government. Chapter 1sets out in more detail the economicreasons why the innovation challenge is so important, and Chapters 2 to 7 set outour policies for achieving a step changein the UK’s innovation performance.

In summary, we will take the followingdirect measures in the seven key areaswhere Government can most effectively act to raise the rate of innovation:

INNOVATION REPORT12

5 ONS Government R&D survey (reproduced in TheForward Look, Table 4, pp 170-171). Figures cover 2003/04– http://www.ost.gov.uk/research/forwardlook03

6 Public Expenditure Statistical Analyses, HM Treasury andONS, (May 2003).

7 http://europa.eu.int/comm/research/era/3pct/pdf/report-mixpublicsupport.pdf

(i) Sources of new knowledge – ideas andinspiration come from a range of sources.The UK has a strong science, engineeringand technology base. But our analysisshows that the UK record of knowledgetransfer and exploitation by business hasbeen generally weak.

Government action to encouragebusinesses to develop and implement newproducts and services has become a highpriority. Given this, the UK Governmentneeds to harness its resources moreeffectively in promoting technologicalinnovation.

We need to improve both the supply sideand the demand side of our researchperformance. Fundamental to our approachwill be setting priorities, taking account ofthe growing international mobility ofbusiness 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).

In recent years the Research Councils have increased significantly the rate of knowledge transfer from their researchactivities. But we believe that there aremore opportunities for much greatercollaboration between the ResearchCouncils 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

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 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.

Overview


Businesses need to be able to make well-informed decisions on how to managetheir 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 University-Business Collaboration8 has also identifiedmany specific barriers to collaboration,which still remain. Proposals in theLambert Review for removing or reducingthese are summarised in Chapter 3. TheGovernment will be responding soon tothese proposals.

(ii) Capacity of companies to absorb new

knowledge – the ability of firms to absorbnew ideas and turn them into action iscritical to a high innovation performance.We need to make certain that ourmanagers have the technological andmanagement skills to innovate, and that, asa country, we put more resources intotechnician and intermediate skills whereinternational comparisons show our recordis very poor.

� 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 demon-

stration activity within Technology

Transfer Offices (TTOs) (Chapter 2).

(iii) Access to finance – the UK hasrelatively sophisticated and large financialmarkets, and an excellent venture capitalindustry, 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

INNOVATION REPORT14

8 http://www.hm-treasury.gov.uk/consultations_and_legislation/lambert/consult_lambert_index.cfm

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 andhelps determine the intensity ofcompetition and the ability of firms to spotopportunities 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 customerscreate the markets for new and innovativeproducts and services. The public sectorpurchased £109 billion of goods andservices in 2001/02 and can play a majorpart 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 – competitionpolicy and regulatory policy, can affect thelevel of innovation. There is an importantopportunity to increase innovation throughmore use of outcome-based regulations,which do not specify the technology to beused, and therefore incentivise companiesto innovate. To encourage GovernmentDepartments we will focus on specificexamples to test how this approach can beapplied 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 – firmsneed to collaborate with many differentorganisations and to draw ideas frommany different places, and there isevidence to suggest that this is an areawhere 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

Overview


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 union-

business 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 globaleconomy. If we are to enhance ourproductivity and raise our standards ofliving we need to improve radically ourinnovation performance. And we will needto innovate continuously in the future sothat we can hold our own against fast-moving new economies.

Since coming to power, the Governmenthas consistently sought to create theconditions necessary for the UK to becomea high value-added, high-tech economyand we are beginning to see the first signsof success. This report sets out the furthersteps we are taking to create the bestconditions for innovation in industry sothat we can all move forward together to meet the innovation challenge.

INNOVATION REPORT16


Chapter 1The innovation challenge

SummaryGlobal competition is increasing as a resultof trade liberalisation, technological changeand reductions in transport andcommunication costs. UK basedbusinesses will find it increasingly difficultto compete on low costs alone in labourintensive industries exposed tointernational competition. The challengefor businesses is to compete on the basisof unique value.

We have defined innovation as thesuccessful exploitation of new ideas and itis central to meeting this challenge. It involves investments in new products,processes or services and in new ways ofdoing business. Measures to develop theskills and creativity of the workforce areoften an essential prerequisite. The speedof technological change and marketresponses make the challenge to innovateurgent and continuous.

Overall UK innovation performanceappears to be, at best, average comparedto our major competitors. This is reflectedin the large productivity gap which existsbetween the UK and its major competitors.Innovation performance accounts for asignificant proportion of this gap. On thewhole, UK firms face a challenge: how toraise their rate of innovation?

Innovation is a complex process sounderstanding why the UK has a relativelymodest innovation performance is notstraightforward. We drew on an extensivereview of the international innovationliterature and consulted with a group ofleading experts in the field.

As a result we have identified seven criticalsuccess factors for innovationperformance. They are:

� sources of new technological knowledge;

� capacity to absorb and exploit new

knowledge;

� access to finance;

� competition and entrepreneurship;

� customers and suppliers;

� the Regulatory environment; and

� networks and collaboration.

They help us to identify current strengthsand weaknesses of the UK innovationsystem. A highly abridged summary is provided in this chapter but the moredetailed analysis is contained in anaccompanying economic report1.

Our vision is of the UK as a key knowledgehub in the global economy. A country thatwill have maintained its outstandingtradition in the advance of scientific andtechnological knowledge while developinga similar level of performance in turningknowledge into exciting and novelproducts and services.

This Report is part of the broader set ofchanges that DTI is now putting in place.The new DTI strategy2 has identifiedpriorities for action that will encouragemore business innovation (includingknowledge transfer and skills). We have re-engineered our business supportproducts, reducing the myriad number ofindividual programmes. The resourcesfreed up by rationalisation will be used tofund new, more strategic and bettertargeted DTI initiatives.

The Report complements the LambertReview of University-Business links as well as the cross-Government SkillsStrategy. It makes proposals to strengthenUK performance against all the successfactors building upon initiatives that havegone before.

INNOVATION REPORT18

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

What is innovation?

1.1. Innovation in this Report is defined asthe successful exploitation of new ideas.Ideas may be entirely new to the market orinvolve the application of existing ideasthat are new to the innovating organisationor often a combination of both. Innovationinvolves the creation of new designs,concepts and ways of doing things, theircommercial exploitation, and subsequentdiffusion through the rest of the economyand society. It is this last – diffusion –phase from which the bulk of the economicbenefits flow. Most innovations areincremental – a succession of individuallymodest improvements to products orservices over their life cycle. But a few willbe dramatic, creating entirely newindustries or markets.

1.2. Innovation involves experimentationand risk taking. Some attempts to innovatewill fail, but across the economy thesuccesses outweigh the failures. And thefailures themselves generate newknowledge, which if evaluated correctly,can improve the chances for futuresuccess. The risk of failure justifies thepotentially high returns from successes,which provide the incentive to innovate inthe first place. Successful innovation-ledcompanies have a number of commoncharacteristics (Box 1.1).

Why is it important now?

1.3. Innovation is vital to most businessesoperating in the UK if they are to surviveand grow in the long term. But there arefive reasons why innovation matters morefor businesses and the people who work inthem today.

Chapter 1 The innovation challenge


Box 1.1Characteristics of innovation-led companies;

� a world wide focus, often requiringearly expansion overseas;

� a balanced growth strategy, based onorganic growth and targetedacquisitions to enter new markets oracquire critical expertise;

� a balanced investment strategy;

� above average investment in marketled research and development (R&D);

� a focus on what really matters to thecustomer; and

� an innovation culture with corporateleadership that expects growth throughdevelopment of new products andservices.

Source: R&D and Value Added Scoreboards.

� Markets around the world are being

liberalised. This brings opportunitiesfrom expanding trade. And firms canlocate all or part of the productionprocess or service wherever the economicadvantage is greatest. But UK-basedfirms also face competition from firms incountries with relatively low labour costsand where education and skills levels arehigh (Figure 1.1). For example, hourlylabour costs in South Korea are just overhalf UK levels, but the proportion ofgraduates in the working age populationis almost identical.

� Long-term reductions in the costs of

transportation and communication havealso opened up new markets and fasterglobal communications mean thatconsumers learn about new fashions,

ideas and products faster than ever

before. The cost of sea freight has fallenby two-thirds since 1920, air transport byfive-sixths since 1930. Transatlantictelephone calls are now almost free onthe internet3.

3 Legrain, Philippe: “Open World: the Truth aboutGlobalisation”, pp108.

� Science and Technology are providing

new opportunities for businesses to

compete based on exploiting knowledge,skills and creativity to produce morevaluable goods and services. Industriesare being created, such asbiotechnology, and traditional ones arebeing transformed (e.g. growth oftechnical textiles). Because they rely onknowledge and skills, they provide areaswhere high wage, developed economiescan maintain a competitive advantageover low wage, unskilled ones.

� Services, accounting for over 70% of theeconomy, are becoming moretechnology intensive. Technology isbeing used to improve businessprocesses and customer service insectors such as retail, hotels and banking(Box 1.2), and to develop new productscombining creative strengths with thelatest technology, such as computergames (Box 1.3). Many high technologymanufacturers now make more moneyfrom services than they do frommanufacturing4.

Box 1.2The impact of the internet on banking

Internet banking has come a long way.The UK has around 7.5m internet bankingcustomers, attracted by a form of bankingthat is easily accessed anywhere andanytime and offers a wide range ofservices (e.g. carry out share transactions,check balances). The internet has allowednew entrants to enter the market, forcingestablished banks to provide similarservices, reduce prices and provide moreinnovative products and greater choice.

Peter Horrell (Director, Transactions, Trade and E-channels) of Barclays hassuggested that, if current trendscontinued, by 2008 at least 40% ofbusiness transactions would be takingplace online, and that further developmentsin technology, security and education willresult in greater and more sophisticateduse of the internet as the standard, ratherthan an additional, channel.

INNOVATION REPORT20

Figure 1.1Hourly labour costs of production workers in manufacturing, 2002

Note: Comparisons are illustrative, as they are affected by exchange rate movements.Source: US Bureau of Labor Statistics

0 20 40 60 80 100 120 140Norway

GermanyDenmark

SwitzerlandUS

JapanUK

AustraliaIrelandKorea

SingaporeHong Kong

TaiwanBrazil

MexicoSri Lanka (2001)

Labour compensation per hour (US=100)

4 Wise, Richard and Baumgartner, Peter: “Go Stream: The New Profit Imperative in Manufacturing”, HarvardBusiness Review, Sept – Oct 1999.



Box 1.3Computer games development

� Electronic games have started to emergeas mainstream entertainment to thepoint where the global industry is worthsome $17 billion per year. In 2002, theUK leisure software market was worth£1.1 billion5 and the computer gamessector employed approximately 20,000people, with 6,000 in development alone.Playable through a growing number ofplatforms – PC, dedicated gamesconsoles, mobile devices, online andinteractive TV – games offer anincreasingly sophisticated experience forthe player in terms of game play, near-cinematic visual impact, sound effectsand music.

� Within this rapidly growing industry, theUK’s games developers have a globalreputation for their combination ofcreativity, innovation and originality,having produced some startlinglyimaginative and highly successful titles.The small, but fast-growing, cluster ofScottish games developers has made aparticular impact in the global marketplace. For example, Rockstar North, anEdinburgh-based development studio,produced the best selling game of 2002with Grand Theft Auto III. The specialiseddigital entertainment research centreestablished by the University of AbertayInternational Centre of Computer Gamesand Virtual Entertainment (IC-CAVE),provides valuable technology and know-how support to the games community.The Proof of Concept Fund has given aparticularly powerful boost to thecommercialisation of research in thisarea and, after four years of participation,the Digital Media and Creative Industries

cluster is beginning to emerge as oneof the most successful participatingindustry groups in terms of commercialoutcomes.

� Lionhead Studios achieved critical andcommercial acclaim with their PC title,Black and White, which sold over 2m copies. John Riccitiello, Presidentand Chief Operating Officer ofElectronic Arts, the world’s largestgames publisher and a significantinward investor, recently said in aninterview in trade magazine Develop,“Many of the greatest games in thehistory of our industry have originatedin the UK and I expect that trend tocontinue.”

� The UK also excels in the technologiesthat drive the game playing experience.Guildford-based Criterion, for example,is the leading developer and supplier of middleware, software tools thatprovide basic functionality and gameprogramme code. These tools enabledevelopers to concentrate on the morecreative elements of games development.Criterion’s Renderware software isused by developers worldwide, andhas been used in games such asBurnout 2 and Pro-Evolution Soccer 2.

� Hollywood has for some time seen a“games spin-off” as a valuablemerchandising revenue stream.However, the creative flow can go theother way and Lara Croft, developedand owned by the UK’s Eidos Plc, isarguably the most widely recognisedcyber character globally and hasinspired two blockbuster films.

5 ELSPA, White Paper: Computer and Video Games: A British Phenomena around the World (2003).

1.4 The speed of changing technology andthe extent to which new products andservices can change market conditions meanthat the challenge to innovate is urgent

and continuous. UK-based businesses will find it increasingly difficult to competeon low costs alone in labour intensiveindustries exposed to internationalcompetition. The challenge for businessesis to compete on the basis of unique value.

1.5. The UK is not alone in facing thischallenge. European leaders agreed atLisbon in spring 2000 to make the EU “themost dynamic, knowledge-driven economyin the world by 2010”. Innovation isintegral to achieving this vision. The issuescovered in this Report match closely theagenda set out by the European Commissionin its recent Communication onInnovation6, and Governments around theworld are engaging in policies to promoteinnovation (see Box 7.1 in chapter 7).

How is the UK doing?

1.6. We have consulted a distinguished panelof leading academic experts in drawing upthe analysis underpinning this Report. Thisanalysis has been published separately7.The main points concerning the UK’sinnovation performance are set out below.

� The latest international comparisons ofdata on business R&D (Table 1.1) showthe UK well behind the US and roughlyequal to the EU average. However, it isencouraging that after a steady period ofdecline from 1.5% of GDP in 1981 to1.16% in 1997, we have seen a move inthe right direction, to 1.24% in 2002.

� Adjusting for size of economy, UK firms’patenting activity at patent offices inEurope, Japan and the US8 lies wellbehind firms in Japan, Germany and theUS and is just below the Europeanaverage (Figure 1.2).

INNOVATION REPORT22

6 http://www.cordis.lu/innovation-policy/communications7 DTI Economics paper no. 7 –

http://www.dti.gov.uk/economics8 These are described as triadic patents.

� Increasing environmental concerns areacting as a stimulus to innovation.Demand for environmental improvements– for example, reducing CO2 emissionsand volumes of waste – may requirechanges in the economy and to the waywe live. To deliver these changes themarket has to generate innovative uses oftechnology, new ways of doing businessand new consumer attitudes (Box 1.4).There is a particularly strong case forGovernment to join up its innovation andenvironmental policies to reduce thecosts of environmental damage.

Box 1.4Environmental benefits from innovation

Kronospan have demonstrated economicand environmental benefits from usingnew technology to recover re-usablewater and fibres from effluent generatedduring wood fibreboard manufacture.The manufacture of medium densityfibreboard (MDF) at Kronospan Ltd’s sitein North Wales generates large amountsof effluent, which was previously takenoff site for treatment and disposal athuge cost and environmental impact.

The company installed a membranesystem that allows virtually 100% materialrecovery and re-use of treated water.Costs of handling effluent were cut byhalf. The benefits of using a membrane-based system at Kronospan Ltd include:

� net annual cost savings of over £250,000;

� disposal of nearly 48,000 m3/year ofeffluent avoided;

� mains water consumption reduced by44,000 m3/year; and

� replacing about 480 tonnes/year ofmaterials with recovered solids.

� However there are significant differencesbetween sectors reflecting importantdifferences in opportunities forinnovation as well as performance. The UK has some strong sectors – suchas pharmaceuticals, aerospace,biotechnology, financial services,telecommunications and creativeindustries (Box 1.3) – and strongindividual companies in other sectors.



� Although systematic data is lacking, itappears that the UK lags behind the USand major Organisation for EconomicCooperation and Development (OECD)economies in the take- up of bestpractice improvements such as leanmanufacturing.

� Data from surveys, which rely onbroader measures of innovation, paint a similar picture with UK performanceweaker than its international peers.

Figure 1.2Number of patents per million population, 1998

80.9

69.9

52.2

34.0 31.7

16.9 12.4

0

10

20

30

40

50

60

70

80

90

Japan Germany UnitedStates

France UnitedKingdom

Canada Italy

Note: These are triadic patents registered in the EU, US and Japan.Source: OECD

Table 1.1Expenditure on business R&D as a percentage of GDP, 1992-2002

1992 1997 1998 1999 2000 2001 2002

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 1.75

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 1.24

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 2.06

OECD* 1.49 1.48 1.49 1.53 1.56 1.62

*Most recently available figures are for 2001.Source: OECD/ONS

1.7. Overall UK innovation performanceappears to be, at best, average comparedto our major competitors. This is reflectedin wider measures of economicperformance:

� UK productivity lags behind manyleading economies. The gap between theUS and the UK is substantial whatevermeasure is adopted;

� UK productivity is relatively low in mostsectors. Much of the overallproductivity gap arises in serviceindustries such as retail and distribution,rather than manufacturing; and

� innovation is one of the key sources ofproductivity growth alongsidecompetition, enterprise, skills andinvestment9. A lack of investment incapital, skills and R&D all contribute toexplaining the productivity gap (Figure1.3). The chart shows that, comparedwith the US and France, a significantproportion of the labour productivity gapis due to lower volumes of R&D.

� In contrast, all the productivity gap withGermany is due to lower levels ofinvestment in capital and skills. The rateof return on investment in R&D is lowerin Germany than in the UK. Innovation-related factors such as organisationalculture and business methods alsocontribute to the unexplained “other”productivity differential.

1.8. The analysis suggests that UK businessfaces a challenge: how to raise its rate ofinnovation? In a recent DTI EconomicsPaper10, Professors Michael Porter andChristian Ketels made this point very clearly:

“However, the UK currently faces atransition to a new phase of economicdevelopment… We find that thecompetitiveness agenda facing UK leadersin Government and business reflects thechallenges of moving from a locationcompeting on relatively low costs of doingbusiness to a location competing on uniquevalue and innovation. This transitionrequires investments in different elementsof the business environment, upgrading ofcompany strategies, and the creation andstrengthening of new types of institutions.”

1.9. A similar analysis underpins the ScottishExecutive document “Framework forEconomic Development in Scotland” andthe “Smart, Successful Scotland” strategy.

How did we try to explain thecauses of UK performance?

1.10. Innovation is a complex process sounderstanding why the UK has a relativelymodest innovation performance is notstraightforward. To help us do this we drewon an extensive review of the internationalinnovation literature, aided by a panel ofexperts11. We also drew heavily on analysisby the AIM Management Research Forumand the OECD.

INNOVATION REPORT24

10 M Porter and C Ketels, UK Competitiveness: moving tothe 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

Figure 1.3Contributions to the UK productivity gap with the US, France and Germany, 1999

0

5

10

15

20

25

30

US France

% d

iffe

ren

ce w

ith

UK

OtherR&D

SkillsPhysical capital

Source: Crafts and O’Mahoney (2001).

Germany-5

9 HM Treasury, Productivity in the UK: The Evidence and theGovernment’s Approach (2000).

As a result we have identified seven criticalsuccess factors for innovationperformance. They help us to identifycurrent strengths and weaknesses of theUK innovation system and to developproposals to improve its performance.

Success factors for UK innovation performance

1.11. What follows is a highly abridgedversion of the supporting analysis,summarising the UK’s performance againstthe seven factors:

� sources of new technological knowledge

play an important role in shapinginnovation systems. Science-basedtechnologies are increasing inimportance. New products and servicestend to embody a wider range oftechnologies, increasing the complexityfaced by individual firms. UK-based firmsmake extensive use of customers andsuppliers as knowledge sources. The UKScience, Engineering and Technology(SET) base is highly productive and theUK has world class design expertise.Relatively low levels of innovation spendmean that UK-based firms are less wellplaced to benefit from these or fromcomparable sources internationally;

� the capacity to absorb and exploit

knowledge defines a firm’s ability to turnknowledge into new products, processesor services. Fundamentally it is peoplewho create knowledge, managebusinesses and innovate. Poor skillsamongst managers and the workforcemore generally have hinderedperformance. The culture within UK-owned firms appears to place lessemphasis on creativity. Few firms showevidence of systematic adoption of thehuman resource management practicestypically associated with effectiveemployee relations and a workplaceculture supportive of innovation;

� all investments in innovation needaccess to finance. Relatively lower levelsof innovation spend are probably moredue to a lack of incentives and capacitythan a shortage of funds, although somefinancing gaps exist. A past history ofmacro-economic instability, weaknessesin skills and corporate strategies have allcontributed to lower levels of spend;

� competition provides a stimulus toinnovation and helps determine theintensity of competition and the ability offirms to spot opportunities and managerisks. Weak competition policies in thepast have reduced incentives toinnovate; and entrepreneurship ratesare, at best, moderate;

� customers and suppliers put pressure onfirms to deliver better quality goods andservices and provide opportunities forinnovation. Many UK-based firms competein global markets and the UK is anattractive market for innovative firms fromabroad. The public sector purchased £109billion of goods and services in 2001-0212.There are major opportunities to makepublic sector procurement more effectivein stimulating innovation while achievingspending objectives and value for money;

� the regulatory environment affects the possibilities and incentive structuresfor innovation. OECD comparisons show the UK to be relatively lightlyregulated, although there are continuingbusiness concerns about the impact ofnew regulations. Some firms appear tolack awareness of Intellectual PropertyRights (IPR); and

� networks and collaboration areimportant means of accessing knowledge.Businesses are increasingly lookingoutside their sectors for opportunities to collaborate. UK-based firms appear to have many, varied networkrelationships, but the infrastructure ispatchy and relationships appear to belargely driven by short-term decisions.



12 HMT/Office for National Statistics, Public ExpenditureStatistical Analysis, May 2003.

Areas of Government influence

1.12. Ultimately innovation depends on theknowledge, skills and creativity of thoseworking in businesses. But Governmenthas an important role in creating the rightenvironment for innovation. Figure 1.4 setsout the main mechanisms and channelsthrough which Government – at variouslevels – influences business innovation.

1.13. The Government has already laid thefoundations of an innovation-driven economyin areas such as macro-economic policy,fiscal policy, competition policy, tradepolicy and education and skills (Box 1.5).

1.14. Since 1997 we have produced threeWhite Papers, “Our competitive future –Building a knowledge driven economy”(1998), “Excellence and Opportunity – aScience and Innovation Policy for the 21stCentury” (2000) and “Opportunity for All in a World of Change – Enterprise, Skillsand Innovation” (2001). In these we set inmotion a series of micro-economic measuresto stimulate innovation, such as increasedinvestment in the science base, incentivesto encourage research institutions and

universities to commercialise theirresearch, and measures to encourage moresmall businesses to start up and innovate.This Report builds on the progress made inthose White Papers.

1.15. Policies and programmes affectinginnovation are determined at a variety oflevels. In some cases, the role of the UKGovernment is to influence developmentson a European or global scale. Manypolicies in this Report cover the UK as awhole. But significant aspects of theinnovation policy agenda in NorthernIreland, Wales and Scotland are theresponsibility of the DevolvedAdministrations (DAs). Where matters aredevolved, we will work with the DAs toaddress the innovation challenge that weall face. In England, the RegionalDevelopment Agencies (RDAs) aresignificant players in innovation policy.Chapter 6 sets out how DTI and RDAs willwork in closer partnership to ensure thatnational policy and priorities take intoaccount regional priorities.

INNOVATION REPORT26

Advice and support

for business

� Best practice programmes

� Support for developingnew technology

� Help accessing finance

� R&D tax credits

� Support for inwardinvestment

� Access to globalknowledge base

Opportunities

� Public procurement

� Regulations

Building blocks of innovation: a supportive climate

� Macroeconomic stability � Education and training policy � Trade policy

� Competition policy � Physical and IT infrastructure � Science policy

Enablers

� Intellectual propertyframework

� Measurement system

� Standards

Business Innovation

Figure 1.4How Government policies influence innovation

� Support for investment – Reforms tomonetary and fiscal policy –independence for the Bank of Englandand the code of conduct on fiscalstability – can have a significant positiveimpact on investment in innovation. The new tax incentives for R&D arecomparable with, or more generousthan, those in other OECD countries. The small firms rate of corporation taxhas been reduced to 19%, alongside the creation of a new zero starting rate.The Government has also introducedfinancial incentives for venture capital.

� Better education and training – Between2000/01 and 2005/06, education spendingwill increase by 36% in real terms(forecast to rise to 5.5% of GDP inEngland by 2005/06). This will besupported by demand and supply sidereforms to improve effectiveness. Theseinclude changes to improve standardsand skills delivery. And through the newSkills Strategy work will be done toboost demand for learning and makeskills development more responsive tothe needs of employers.

� Competition Policy – Recent measuresinclude introducing the Competition Act1998, with two major provisions to guardagainst anti-competitive agreements andabuse of dominance, and the EnterpriseAct 2002. The Office of Fair Trading (OFT)now has powers to refer markets to theCompetition Commission where theymay not be working well. Other changesinclude improvements to the mergersand monopolies investigation regimes,and criminal penalties for thoseengaging in hard-core cartels.

� Better infrastructure for business

� Planning – The planning system isbeing reformed so that it will deliver ahigher quality service for the businesscommunity, helping competitivenessand productivity. The ScottishExecutive has taken forward anumber of initiatives to modernisethe Scottish planning systemincluding a review of StrategicPlanning Conclusions and Next Steps(June 2002) and the updating ofNational Planning Policy on EconomicDevelopment (November 2002) andPlanning for Housing (February 2003).

� Transport – The Department forTransport’s (DfT) latest progressreport, published in December 2002,shows that a good start has beenmade in delivering the improvementsenvisaged in the 10 Year Plan.Increased funding is in place; newprojects are being planned anddelivery is being improved.

� Broadband – The Government isworking hard to deliver its target forthe UK to have the most extensiveand competitive broadband market inthe G7 by 2005. Broadband networksnow cover some 80% of the UKpopulation (although the coveragechallenge is much greater in moreremote parts of the UK) and themarket is more competitive than ourEU G7 neighbours and the USA. TheGovernment hopes to see broadbandavailable to every community in theUK by 2005. Departments acrossGovernment will spend £1 billion onbroadband connections, bringingbroadband to every school in Englandby 2006 and wiring up every GP’ssurgery and every hospital.



Box 1.5 Putting in place the building blocks for successful innovation

Next steps

1.16. Our vision is of the UK as a keyknowledge hub in the global economy. A country that will have maintained itsoutstanding tradition in the advance ofscientific and technological knowledgewhile developing a similar level ofperformance in turning knowledge intoexciting and novel products and services.In terms of business R&D and patenting wewill aim to be the leading major country inEurope 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 fivepriority areas for the next five years. We want to:

� strengthen knowledge transfer frombusiness to business and betweenbusinesses, academic communities andother knowledge creators and providers;

� maximise people’s potential in theworkplace;

� ensure competitive markets;

� strengthen regional economies; and

� forge closer partnerships with keyeconomic players nationally andoverseas.

1.18. Furthermore, the DTI is continuing to

refine its portfolio of business support

products. We have rationalised the numberof products that are available to businessto release resources. This will make iteasier for business to access Governmentsupport when needed and provide greaterfocus and clarity on where the DTI isadding value. Furthermore the work of theInnovation and Growth Teams (IGTs) hasplayed an important role in identifyingpriorities in sectors such as aerospace (Box 1.6).

INNOVATION REPORT28

Box 1.6DTI Sector Innovation and Growth Teams

In the last couple of years the DTI has set up a series of IGTs. These are teamsof business people, trade union officials,industry experts and officials fromvarious Government Departments whohave come together to develop a long-term vision for the industry sector and toadvise the Government on policies thatneed to be adopted by the sector toinnovate and grow. They are developingclose ties with the Sector Skills Councilsto 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 alsoproduced a similar report19.

There are common themes arising fromIGT recommendations that are consistentwith the conclusions emerging from thisReport:

� the need to raise productivity throughbusiness improvement;

� the need for businesses to encouragethe demand for skills and help identifysignificant gaps;

� the need for central Government andregions to work closely together;

� the need for regulations to beinnovation-friendly; and

� the important role of Government as a customer in some industries(bioscience, aerospace).

13 Prosperity for All: The Strategy, DTI 2003;http://www.dti.gov.uk/about/strategy2003.html

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/

1.19. This Report proposes modificationsand changes in the direction ofGovernment policy that will unfold over anumber of years. These are balanced withspecific proposals that will deliver changewithin a short period of time.

1.20. We have prepared an action plansummarising the main recommendationstogether with milestones for theirimplementation and a statement ofresponsibilities. This can be found at theend of this Report.

1.21. However, achievement for asignificant and sustained impact on UKinnovation performance requires a strategyfor the medium to long term. Long-termsuccess requires action across the wholerange of Government policies18. It requirespartnerships within Government and withother players in the innovation system,such as universities and researchorganisations. Meeting the innovationchallenge is a matter of urgency buthistoric weaknesses in innovationperformance are not resolved overnight.Nevertheless, we want to see more:

� Innovation in business – that is, morenew products and services and more useof new business processes, all driven bycustomers and markets. An increasedrate of innovation will be necessary toreduce the productivity gap with ourmajor competitors and continue seeingimprovements in living standards andquality of life.

� Businesses engaging in innovation.While we will never have 100% ofbusinesses engaged in innovation wewould like to see an increase in theproportion of businesses engaged ininnovation.

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.



18 The European Commission also make this point inInvesting in Research: an Action Plan for Europe [COM(2003) 225 final], (adopted 30 April 2003).

INNOVATION REPORT30


Chapter 2High performance innovative companies

In the future, UK companies will have tocompete more and more on the basis ofunique and innovative products andservices. This will require inspirationalleadership, stronger management skills, a highly-trained and motivated workforce,a flexible labour market that promotesdiversity and fair treatment, andworkplaces that recognise environmentalissues and the need for greater resourceproductivity.

The Skills Strategy (July 2003) sets out theGovernment’s agenda for acting on boththe demand for, and supply of, skills as amajor contributor to raising productivity. It commits the Government to creating amore demand-led training system and,through the DTI, Department for Educationand Skills (DfES) and other relevantDepartments will implement the Strategyin England, focusing particularly on co-sponsorship of Sector Skills Councils.Similar initiatives are underway in Scotlandand Wales. The DfES and DTI are alreadyjointly pursuing a major programme ofwork to follow up the recommendations ofthe Council of Excellence in Managementand 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.

The ability of companies to innovate anddeliver high value products and servicescritically depends on a high level ofmanagement 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 theinnovation performance of Small Medium-sized Enterprise’s (SMEs) in England.Promoting innovation, skills andknowledge transfer will be made one of thekey delivery themes for Business Link.

To improve the rate of innovation of smallcompanies, the SBS will ensure BusinessLink proactively targets companies withhigh innovation potential.

Business Link will tailor assistance to acompany’s specific needs depending on itslevel of innovation capability and the stageit has reached in the product/service lifecycle. Advisory services will include:

� intellectual Property Rights advice;

� assistance with R&D grants;

� assistance with Knowledge Transfer

Partnerships;

� brokering collaboration between


Institutes; and

� alerting SMEs to public procurement

opportunities.

INNOVATION REPORT32

Summary

1 The Skills for Business network comprises employer-ledSector Skills Councils and the Sector Skills DevelopmentAgency

Design skills are vital to business innovation,but not enough companies use design toconnect 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).

Innovation ultimately depends on theknowledge, skills and creativity of people at work. The Government is committed to working with industry, trade unions andemployees to supply the skills on whichthe development of high value-addedstrategies will depend.

we will


which unions can respond to the


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.

There is also an increasing need torecognise our diverse workforce. In particular, women in the UK are lesslikely to start-up a business than theircounterparts 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.



2.1. The challenge for UK companies intoday’s global knowledge economy is tomake innovation a key part of theirstrategies, embed innovation into theworkplace and to move from competing on the basis of low costs to competing on unique value and innovation.

2.2. Competitive strategies require a newperspective on management leadershipand employee skills. The DTI’s value addedscoreboard2 shows that the morecompetitive firms have, higher-level skills.Mark Hepworth’s report3 “A regionalperspective on the knowledge economy”demonstrates that knowledge intensive, highperforming innovative companies drivedemand for skills and reward workers withhigher wages. The Government’s strategyfor raising skills across the workforce, inorder to meet the needs of employers andlearners and contribute to higherproductivity, was set out in the Skills Strategypublished in July 20034. Similar initiativesare underway in Scotland and Wales.

2.3. The extent to which organisationsinnovate depends on their capacity to absorbnew knowledge and implement change.Innovative companies have anentrepreneurial culture driven by inspirationalleaders, skilled management, and informedand engaged employees. In such a cultureboth businesses and individuals are able to reach their full potential.

2.4. Businesses can also improve theircapacity for innovation by fosteringorganisational flexibility, raising skills andemployee engagement. Better ways ofworking such as flatter structures, familyfriendly work practices, teleworking,information sharing and the involvement ofemployees in problem solving help createa more agile organisation with greaterinnovative capacity. The most definitive USstudy to date, Manufacturing Advantage5,

found that high performing work systemsmay enable firms to shorten the time required to develop new products, introducenew models or styles, produce a greatervariety of products, increase the extent ofcustomisation or ease the adoption of newproduction technologies. UK and Europeanresearch has had similar findings6.

2.5. In the Skills Strategy there is a strongemphasis on the relationship betweenskills and innovation in raising productivity.The Government is committed to ensuringthat the supply of publicly-funded skills andtraining is responsive to employers’ andlearners’ needs, while also acting to raisedemand for skills as an essential elementin securing a flexible labour market and a competitive economy. The Government is committed to raise standards in order to produce tomorrow’s entrepreneurs andmanagers. Workforce skills will be essentialfor delivery of new goods and serviceswith lower environmental impacts.

Management skills

2.6 The ability of companies to innovateand deliver high value products andservices critically depends on a high levelof management and technological skillsand the ability of people to solve problemsfaster and better than their competitors.The difficulty of putting together the rightblend of skills in management teams is oneof the major barriers to growing successfulhigh value-added businesses.

2.7. We also need draw upon a much widerand more diverse pool of talent if we are tounlock the potential of managers in thefuture. At present, women comprise 30% ofmanagers in England, 29% in Scotland and33% in Wales, and managerial occupationsremain strongly gender-segregated. 6.2%of all managers in Great Britain are fromethnic minority backgrounds compared to8.7% of the overall working age population7.

INNOVATION REPORT34

6 UK:Jonathan Michie and Michael Sheehan, “HRMpractices, R&D expenditure and innovation investment”,Industrial and Corporate Change, 8(2), 1999. Germany:Reinhard Hujer and Dubravko Radic, “Holistic InnovationSuccess? Complementarities between Flexible Workplaceand Human Resource Management Practices in theInnovation Process”, paper to the European Association ofLabour Economists conference, Seville, September 2003.

2 http://www.innovation.gov.uk/finance3 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 5810http://www.dfes.gov.uk/skillsstrategy/

5 Manufacturing Advantage: Why High performance worksystems pay off, Eileen Appelbaum, et al, CornellUniversity Press, Ithaca, 2000.

Box 2.1High performing start-ups (Global Entrepreneurship Monitor)

The Global Entrepreneurship Monitor8

(GEM) was initiated by London BusinessSchool and Babson College in 1999 tobetter understand the characteristics of agroup of entrepreneurial companies thataccounted for significant levels of jobcreation. In addition, in a landmark studyin 1979, David Birch estimated that 66%of new jobs created in the US between1969 and 1976 originated from small firmswith less than 20 employees. Subsequentempirical studies have shown that a smallhigh-potential group (3-4% of companiesfounded in a period) account for between50-75% of all jobs created 10 years later.

37 countries participate in GEM, whichsurveys over 100,000 adults, performs in-depth interviews of over 1000 nationalexperts, and collects standardisednational data from sources such as theWorld Bank, International Monetary Fund,and United Nations.

GEM data suggests that high-potentialentrepreneurs thrive in economies witheffective Science, Engineering andTechnology Bases (SET bases). Three findings particularly show this link:

� high-potential entrepreneurship isconsistently linked to nationalcompetitiveness measures(competitiveness, governmentefficiency, technology index, ICT);

� high-potential entrepreneurship is alsostrongly linked with a strong SET Base(participation in secondary and tertiaryeducation, scientific publications percapita); and

� high-potential entrepreneurship is onlyweakly linked to “raw” measures ofnational science, engineering andtechnology (R&D expenditure per GDPand per capita) suggesting that it is notjust how much is put in but also how itis exploited that matters.

2.8. The Skills Strategy in England, andequivalent programmes in Scotland andWales, aim to provide high opportunitiesfor training and skills development to meetthe needs of both employers and employees.The Government is encouraging business-to-business learning by working withBusiness Schools and other managementbodies such as the Chartered ManagementInstitute (CMI) to improve the access ofmanagers and students to high quality andrelevant management education. In recentyears there has been a huge increase instudent enrolment in business courses:DfES figures show that there are 160,000people studying Business Administration at undergraduate level and a further 80,000at postgraduate level in 2001/02. The latestavailable information shows that 13,318people enrolled for MBA courses in 2000with 10,800 people graduating with MBAsin 2002/03.

2.9. Regional Development Agency (RDAs)led regional partnerships have done muchto highlight the skill needs of managersand have championed innovativeapproaches to management developmentand training. In the South East, for example,the RDAs has committed £2m to activities that will develop andenhance management and leadershipacross the region. These activities include:increased number of business mentors,and employer learning networks anddiagnostic packages that are available tobusinesses across the region.

2.10. The joint DfES and DTI Leadershipand Management Unit is pursuing aprogramme of work to follow up therecommendations of the Council forExcellence in Management andLeadership9. Within the context set by theSkills Strategy the main elements are:

a) Introducing a programme to supportleadership and managementdevelopment of the Chief Executives andsenior managers of medium-sized firms(see paragraph 2.19).



9 http://www.managementandleadershipcouncil.org/7 Summer 2003. Labour Force Survey.8 http://www.gemconsortium.org/default.asp

b)Supporting the work of the new forumcreated by the Council for Industry andHigher Education and the Association ofBusiness Schools. This brings togetheremployers and the Deans of majorBusiness Schools, so that they canunderstand better what employers wantin business and management education.

c) Using the new Investors in People modelfor Management and Leadership to helpfirms assess their own performance andbenchmark themselves against others.The launch of the Chartered Managerprogramme by the CMI, combined withthe forthcoming new occupationalstandards for effective management andleadership programmes, helps companiesdevelop the skills of their managers.

INNOVATION REPORT36

The Centre for Scientific Enterprise Limited(CSEL) is one of 13 SECs at leading UKuniversities funded by the Office of Scienceand Technology (OST).

CSEL places 40 University College London(UCL) professors, lecturers and post-graduates per year in 100-hour long businesscourses at London Business School,alongside MBA students. The scheme hasdelivered some concrete results:

� 35% of Research Scientists identifiedcommercial opportunities from theirresearch;

� a number of departments in UCL,including Computer Science andMedicine have adopted a more proactiveapproach to commercial exploitation ofresearch; and

� UCL Research Scientists and LondonBusiness School graduates have becomeinvolved in a number of successful spin-outs.

In 2002 CSEL created the E-Challenge. 140UCL academics formed teams that included30 London Business School MBAs:together they explored 40 live technologyproposals and generated 12 start-upproposals, a number of which have alreadyattracted funding.

Discussions are currently underway to fundTechnology Enterprise chairs at bothLondon Business School and UCL.

The Chevening Technology EnterpriseScholarship (funded separately by TradePartners UK and operated by CSELnationwide) brought 57 technologypostdoctoral students to 11 UK universities,including several SEC universities for thepurpose of working with academicsupervisors on the commercialisation oftechnology research. London BusinessSchool, Imperial College London andCambridge University’s Institute ofManufacturing are collaborating on businesstraining designed to enable students toassess the commercial value of technologyresearch, develop business plans andpotentially launch start-up companies.

Cambridge has benefited from a SEC, aswell as from substantial funding for theCambridge/ MIT Institute. They haveestablished four Masters degrees based on successful MIT multi-disciplinaryprogrammes:

� Chemical Engineering Practice;

� BioScience Enterprise;

� Engineering for SustainableDevelopment; and

� Technology Policy

In Scotland, the Scottish Institute forEnterprise (SIE), funded by ScienceEnterprise Challenge now brings togetherall of Scotland’s universities. The SIE isnow delivering enterprise education toover 8000 students and has supported 55sustainable businesses.

Box 2.2Developing entrepreneurship among science students

d) Identifying and implementing specificsector-related leadership andmanagement priorities through adedicated Skills for Business network10

action group.

2.11. In 1999 we launched ScienceEnterprise Centres (SEC) to provide accessto entrepreneurial skills for undergraduatesand graduates in science and engineering.The uptake has been enthusiastic, there arenow thirteen centres funded by the Officeof Science and Technology (OST) at a costof approximately £40m.

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.



South East Derbyshire College offers 500different study programmes, serving morethan 8,000 people each year at its mainsites and learning centres throughout thelocal area.

A key part of the College Mission is torespond to the needs of individuals andemployers through the provision of highquality, cost-effective training and relatedservices.

The college has created a branded servicecalled ‘Employer Direct’ which works as adedicated business support unit by helpingbusinesses to find practical solutions, not just flexible training packages. The service is delivered through a range of providers, including the college, whichmeans that they can refer businesses to the most appropriate source of help andadvice. In 9 months they have worked with200 new businesses and are now workingwith the local Business Link to better targetemployers.

A full range of services is offeredincluding flexible and bespoke trainingpackages, advice and guidance on humanresources, distance learning, ModernApprenticeships and signposting to therange of business support opportunitiesavailable within the College and morewidely. South East Derbyshire CollegePrincipal Mick Brown explained:

“The College takes its role of developinga strong vibrant community in Erewashand Amber Valley very seriously.

We remain committed to supporting thelearning and skills training needs of thelocal community whether that be schoolleavers, adults and community groups oremployers.

Our Employer Direct business unit hasbeen extremely successful in working inpartnership with local businesses of allsizes to address their training requirementsand tackle skills shortages which have adirect benefit to the bottom line.”

Box 2.3South Derbyshire College - Employer Direct

10 The Skills for Business network comprises employer-ledSector Skills Councils and the Sector Skills DevelopmentAgency.

2.13. We also believe that an opportunityexists to increase the knowledge transferactivities 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.

Upgrading SME management skills

2.14. In small business the vision,leadership and management skills of theowner/manager and the small top team arethe keys to success. SME managers,however, face obstacles to improving theirleadership and management skills. They are usually so central to running thecompany on a day-to-day basis that theycannot be away from it for more than shortperiods of time, and they need to havecourses tailored very closely to theirspecific needs rather than covering thewhole range of management andleadership skills.

2.15. We see the Small Business Service(SBS) as having a major role in raising theinnovation performance of SMEs inEngland, working with a range of partnersincluding RDA’s, and public, private andvoluntary sector service providers withaccess through Business Link. Last yearBusiness Link provided support services orproducts to over 300,000 SMEs, an increaseof 40% over the previous year.

2.16. Working with Business Link and itswider network of business intermediarieswe will strengthen the links between skillsand business support programmes. At aregional level RDAs and the SBS will needto ensure that the offerings of regionalproviders are branded consistently and in a clear and simple way, and that DeliveryPartners work together to ensure that

customers are encouraged to accesssupport through the Business Link brand.Business Link will build on the success oftheir current role for the Employer TrainingPilots, where it signposts companiesinterested in raising the basic skills of theirworkforce to the most appropriate trainingproviders. 300 Business Learning Accounts(BLAs) will be piloted over the next twoyears in Scotland.

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.

2.18. 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

INNOVATION REPORT38

11 Knowledge transfer partnerships product will now bringin FE colleges

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 “promotinginnovation and knowledge transfer” one of the key delivery themes for BusinessLink. Some £23m will be spent on thisdelivery 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 requireassistance to understand complex issuessuch as Intellectual Property Rights (IPR)and ICT (this is covered in more detail inChapter 4). They need to know what help isavailable from Government and othersnationally, regionally and locally, and haveit provided in an easily accessible format.Business Link provides access to this typeof advice from experts in the public,private, social enterprise, and voluntarysector. It helps business learn frombusiness by providing access to local clubsand networks, some of which specialise in innovation and technology topics. In Scotland advice relating to intellectualassets and property will be channelledprimarily through the National IntellectualAsset Centre (NIAC).



Box 2.4Business Link case study: water for barren lands

Business Link Wessex (BLW) has beenleading the way in providing innovationservices to small companies.

Inventor Sam Barzanji has invented anew gravity pump. Powered solely by theweight of water inside it, it can raise5,000 litres of water a day, day in, yearout, to a height of 25 metres, even out ofsludgy rivers. Sam, a Kurd, was a topirrigation engineer in Iraq until his housewas destroyed by Saddam Hussein’sforces in l997. Fleeing to this country as a refugee, but unable to bring his familywith him, he initially lived on benefits.

“Faced with an empty life,” he said, “I had to try to do something useful, andI cannot thank Business Link Wessexenough for helping me.” First, BLWsurrounded Sam with a Virtual Company,a team of experts including a one-timedirector of Vosper Thorneycroft and anex-IBM marketing specialist. Pioneered byBLW to give lone inventors credibilitywith investors, The Virtual Companyconsists of experts who work for no moneybut for virtual shares, which become realshares when the company takes off.(Forty-such companies have been startedin Wessex in the past three years.) Next,BLW helped Sam to secure a £45,000 DTISMART grant, guided him to an incubatorworkspace, and put him in touch with UKTrade and Investment and people whocould smooth his way to market.

Trials of Sam’s pump were recentlycompleted at the Southampton Institute.At around £150, it would be significantlycheaper than the standard aid-agencyhand-pump. And if current discussions go well, Sam’s pump looks to have a life-saving future in the world’s irrigation-barren regions.

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


Institutes; and

� alerting SMEs to public procurement

opportunities;

2.24 In Scotland, general assistance isprovided through the Business Gatewaywith advice on specific schemes is given bythe scheme administrators, e.g. theScottish Executive, Scottish Enterprise,Highlands and Islands Enterprise and theLocal Enterprise Companies (LECs).Diagnostic advice and help to prepare forinnovative projects is provided free by theInnovators Counselling and AdvisoryService Scotland (ICASS). Advice relatingto intellectual assets and property will bechanneled 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.

Design and innovation

2.26. Research shows that design skills arevital to business innovation and cansignificantly enhance a company’s financialperformance. A recent study revealed thatthe share price of companies that useddesign well outperformed the FTSE 100 by65% over the last seven years to 200212.Research shows that 42% of UK businessesengage in design activity of some sort. But, significantly, this rises to 74% forrapidly growing companies13.

In short, the most successful, growing andimaginative companies use design toenable innovation. Better designs will becrucial in developing goods and serviceswhich use less energy or materials, or aremore easily reused and recycled.

2.27. Unfortunately not enough businessesuse design to connect new ideas withmarket opportunities and a lack of designingenuity usually indicates static or pooroverall business performance. Designcontributed to the competitiveness of 64%of rapidly growing businesses, but only 9%of static ones. Design is considered integralor significant to 90% of rapidly growingcompanies, compared to just 26% of staticbusinesses14. Similarly, 79% of those thathad grown rapidly in the previous year sawa great or fair contribution to productivitythrough design, innovation and creativity.This falls to 4% for those that have stayedthe same size.

2.28. The UK has a world leading designindustry. The design consultancy sectoralone 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, suchas product design, up to 80% of turnovercomes from overseas earnings16. Britain also has a world-class designeducation system.

INNOVATION REPORT40

14 ibid.15 Design Industry Valuation Survey, British Design Initiative

and Design Council, 2002.16 ibid

12 Design Index research, Design Council/BVA, 2003.13 National Survey of Firms, Public and Corporate

Economic Consultants, 2003.

Box 2.5Denby Pottery Company Ltd

Denby Pottery combined effective use ofdesign with significant investment inplant and equipment to improve itsperformance at home and abroad.

Commercial success in the mid-90s withtwo classic ranges – Imperial Blue andRegency Green – enabled the company tofloat on the Stock Exchange, raising capitalfor investment. The business investedover £5m in a materials preparation plantand a kiln, which increased productioncapacity. At the same time, it alsoinvested strongly in Design, taking a‘lifestyle’ approach to its markets,broadening the ceramic product rangeand including glassware and tabletopaccessories. In this way they stand outfrom their competition and attract theircustomers. A business driver now!

Turnover, fuelled largely by the successof the new products, grew from £21.9min 1993/4 to £38.7m in 2002. From itsmanufacturing base in Derbyshire, Denbynow exports to 30 countries. Significantly,a large proportion of this increasedturnover is from these new products.

2.29. Design can facilitate technologytransfer, yet is rarely – and neversystematically – used as a transfer tool byuniversities17. In addition, there is a poorunderstanding of the business relevance ofdesign by engineering, science and MBAgraduates – tomorrow’s managers18.

2.30. The challenge is to exploit fully thedesign excellence that exists on ourdoorstep, through policies, which bringabout changes in the behaviours of UKmanagement in both the private and publicsectors. At the national level, the DesignCouncil19 is the catalyst for the delivery ofthose policy mechanisms. It providesexamples and tools, which enablecompanies and organisations to embeddesign in business activities, and tostimulate changes in behaviour so that ahigher value is placed upon design andcreativity in the workplace.

2.31. The Design Council has evolved anew type of practical activity with smallgroups of manufacturing and early stageemerging technology companies. Even in this early pilot stage, the schemehas influenced management decisions. The participating companies haveincreased projected turnover, significantlyraised design spend and recruiteddesigners/creative directors, and they havemoved from being product or technologydriven to being customer centric.



17 Research for the Design Council by Scientific GenericsLtd on University Technology Transfer and EnterpriseTeaching, 2003.

18 Research on design activity in higher education byNuventis and the Design Council, 2002-2003. 19 http://www.design-council.org.uk/

INNOVATION REPORT42

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 beDesign Demonstration activities. Thesebring design professionals into companiesidentified with help from the relevantindustry organisation. The professionalsprovide a high quality design diagnosis,working with senior management anddesigners to look strategically across thecompanies’ to identify opportunities wheredesign can add value and connect innovationto market opportunities. The Demonstrationwill be chosen to develop and highlight thepotential for “cutting edge” best practice.Continued support is to be providedthrough a mentoring activity.

2.34. Phase 2 will take the outcomes of thedemonstration phase and transfer theunderstanding to a further 500 companiesand communicate the key learning to up to5000 companies. By mounting thesecampaigns with other intermediaries suchas the Engineering Employers Federation(EEF), RDAs, DAs, Sector Skills Councils,Business Link, Manufacturing AdvisoryService (MAS) and others will ensure thebest possible business outreach.

2.35 The goal for each campaign will be todeliver self-sustaining change towards themore effective and strategic use of designby companies over the next three years.

2.36. A further pilot Design Councildemonstration project with UniversityCollege London Ventures demonstrated the added benefits that design can bring to enabling technology transfer from

Box 2.6Aqualisa

To differentiate products fromincreasingly strong Europeancompetition, Kent shower manufacturerAqualisa involved designers SeymourPowell from an early stage in developinga product that balanced user needs,commercial pressures and technology.The resulting Quartz range exceededsales targets by 160% after launch in 2001and the project achieved payback withina year. The company grew by 15% in 2002.

Quartz showers contain electronics tocontrol temperature and power, making itpossible to locate controls anywhere –including on the wall outside the shower– and to programme the shower beforegetting in. And because water is mixed ina unit outside rather than inside thebathroom wall, installation time isreduced from two days for a conventionalshower to just a few hours. Thisresponded directly to user researchshowing that customers disliked theexperience of having a shower installedand were unsure whether they werebeing charged correctly for plumbing.

Investigating customer needs with thedesigners also led Aqualisa to includeother features including a light showingwhen optimum temperature is reachedand push-button controls which don’trequire strength and dexterity to use.

‘If you think design’s expensive, look howmuch bad design costs.’ Martyn Denny,Aqualisa.

Universities into industry, whether throughlicensing or spin-outs. This initiative willnow 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.



The MA in Industrial Design andEngineering (IDE) run jointly by the RoyalCollege of Art (RCA) and Imperial Collegeprovides engineering graduates withtraining in industrial design professionalpractice. The course highlights the linksbetween industrial design and engineeringin creating effectively designed products. It focuses on radical approaches to usercentred briefs, state of the art materialsand production processes withinresponsible environmental parameters, andproduces many patentable products readyfor production.

Industrial placements with design andmanufacturing organisations all over theworld are a key part of the course (whichleads to a diploma from Imperial Collegeas well as an MA from the RCA). More than85% of graduates have gone on to work asindustrial designers with companiesincluding Dyson, Phillips, Audi andGlaxosmithkline.

Glasgow School of Art and University ofGlasgow’s jointly run Product DesignEngineering course combines

engineering theory with laboratory anddesign studio practice. The course aimsto helps students apply academic skills inan innovative ways to designmanufacturable products.

The course pioneered this form ofundergraduate education in 1987, and isaccredited by the Institution ofMechanical Engineers to offer BEng andMEng degrees. It gives undergraduatestudents an appreciation of the technical,creative, management and humancentred issues at the heart of designingfor production. The course has successfullyproduced design engineers with strongcreative and integrated skills and its wellestablished links with industry provideanother highly practical dimension.

Uniquely in mechanical engineeringeducation, the courses attract asubstantial proportion of women.Graduates have gone on to set up theirown businesses or to employment withcompanies including Apple computer,BAE SYSTEMS, Dyson, JCB, Marconi,Nokia, and Psion.

Box 2.7Industrial design and engineering

Upgrading skills across the work force

2.39. At first degree level the UK provides ahigh level of scientists and engineers. Infact, the UK has in recent years producedmore new science and engineeringgraduates as a percentage of 25-35 yearolds than any other G7 country apart fromFrance. But in the UK, as in other countries,the pattern of subject study has shifted;significantly fewer students are takingphysics and chemistry courses, while moreare taking biology and IT. The Governmentis working with the Engineering andTechnology Board and the Science Councilto redress this imbalance.

2.40. As set out in the Skills Strategy20, theUK has a significant skills gap at theintermediate skills level. At the technician,associate professional and skilled craftslevels we have a serious shortage of suchskills compared to our main Europeancompetitors. In the UK 27.7% of theworkforce have intermediate level skillscompared with 51.2% in France and 65% in Germany. This skills shortage clearly hasa serious impact on our productivity andinnovation performance (see Chapter 1).

2.41. Compared with our internationalcompetitors, the UK also has specificweaknesses in: management andleadership skills; professional Information,Communication and Technology (ICT)skills; mathematics, engineering andphysical sciences (STEM skills as identifiedby Gareth Roberts); generic skills (such ascommunication, team working andproblem solving); and basic literacy,numeracy and ICT skills.

2.42. The Hepworth report21 also revealedstriking regional disparities: for instance, in Greater London, 30% of the workforcehas a degree or higher qualificationcompared with less than 18 per cent in the North East. Furthermore in GreaterLondon, 43% of those in work areemployed in knowledge intensive privatesectors compared with only 6% in theNorth East.

2.43. The Skills Strategy22 in Englandmarked a significant shift to a demand-ledapproach that put business needs at thecentre of our skills policy. Throughout theSkills Strategy there is a strong emphasison the relationship between skills,innovation and enterprise. Innovationdrives demand for higher-level skills andskills are essential for businesses to moveup the value chain and develop productsand services that make effective use of newand 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.

This will involve:

� Co-sponsoring the Sector SkillsDevelopment Agency and the Skills forBusiness network to ensure thatemployers are able to influence publicsector 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 afully operational network of 23 SectorSkill Councils by Summer 2004. Four arealready in place, and 19 in various stagesof development. The network will coverapproximately 90% of the workforce.

INNOVATION REPORT44

21 Mark Hepworth, A Regional Perspective on theKnowledge Economy in Great Britain, February 2003

22 ibid

20 21st Century Skills: Realising our Potential. National Skills Strategy, published July 2003.http://www.dfes.gov.uk/skillsstrategy/

� Once in place, the Skills for Businessnetwork will make a major contributionto increasing innovation and providingemployer leadership on skills issues by promoting:

� a clear evidence-based business case,on how skills contribute to improvedinnovation and sector productivity;

� improvements in key areas such asleadership and management;

� action by employers, through SectorSkills Agreements, to address theseskills issues;

� world-class occupational standards that promote innovation.

� Using the business contacts and sectorunderstanding of the DTI’s sector-basedteams, and specifically the DTIInnovation and Growth Teams, to workin a close partnership with the SectorSkill Councils, sharing information andanalysis, drawing on their respectivenetworks, and developing sharedagendas. This will involve closecollaboration on the development ofSector Skills Agreements. The skillsneeds and priorities identified throughthis work will then be reflected in LSC’splanning and funding of the supply oftraining, working through the RegionalSkills Partnerships.

� Making sure companies who arereceiving business support also haveaccess to support to develop the skillsrequired to implement their strategiessuccessfully. Evaluation of past DTIprogrammes shows that innovativeprojects have a significant impact on thedemand for skills: 97% of participantsmentioned that they had increased theirskills levels as a result of undertaking theproject. All future DTI Business Supportprogrammes and our regionalinvestment support programmes willtherefore go further to address the skillsneeds associated with thoseprogrammes. In each case we willconsider, in designing and implementingthe programme, the skills that will be

needed to ensure the investment bringsthe maximum benefits for the company.Where relevant, we will help thecompany identify and secure the newand enhanced skills it will need as aresult of the investment. In monitoringthe impact of relevant programmes, wewill assess the skills impact as one of thekey elements of progress.

� Using our sponsorship of RDAs toensure effective implementation of thenew Regional Skills Partnerships. These will provide a strong alignmentbetween regional strategy, businessneed and service provision. BusinessLink and the new business supportprogrammes will be fully integrated intothe work of these partnerships. Workingwith DTI and DfES, the RDAs will need toassess their capacity to fulfil theexpanded role identified for them in theSkills Strategy and take the necessaryaction to improve their capabilities.

� Working with DfES to reform and expandeducation and training for 14-19 yearolds and Modern Apprenticeships, andintroduce Foundation Degrees, so thatthey develop young people able to dowork to the high standards thatemployers require. As a result, they willbe in a position to command a premiumin the labour market. This will involveincreasing employer involvement in thedesign and delivery of ModernApprenticeship and Foundation Degreeprogrammes.

� Using the Technology Strategy toidentify new demands for skills in hightechnology areas such as nanotechnology,life sciences, aerospace, and ICT.

� Working with DfES and DWP, we areproducing shared priority targetstowards the common goal of raisingemployment, productivity andcompetitiveness.



High performance workplaces

2.45. Evidence shows there is a clear linkbetween innovation and high performingworkplaces, where good managers inspiretheir employees and create a workplaceculture in which new ideas are encouragedand rewarded. In turn, employees who aremotivated and valued can play a vital rolein contributing to the success of thebusiness. The 1998 Workplace EmployeeRelations Survey identified fifteen keyworkplace practices. Those businesses thatdisplayed four or more of these practiceswere more productive than those that didnot. These included fully or semi-autonomous team working, single statusfor managers and other employees, teambriefings with feedback, non-managerialapproach to problem solving, and familyfriendly 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 toachieve a competitive advantage throughworkplace innovation.

2.46 Research23 has also illustrated therelationship between skills deficiencies andorganisational weaknesses and concludedthat strategies to tackle the former cannotbe undertaken in isolation from the latter.The TUC-CBI productivity report24

presented research that found that UKcompanies were more likely to implementtechnology and technique related practicesthan people related practices.

2.47 Team working, involvement indecision-making and extensivecommunications are all particularlyimportant characteristics of highperformance workplaces. Organisationscan get a bigger performance boost from

working with their employees than from a ‘command and control’ approach tomanagement. A 1990s study carried out by the Employee Participation andOrganisational Change programme(EPOC)25 into the impact of employeeparticipation reforms in eight countriesfound that 94% of workplaces that haddelegated tasks to groups of workers sawan improvement in quality and 58% saw an improvement in output. These researchfindings illustrate the impact of workorganisation and workplace culture oninnovation. Furthermore, high-trustrelationships that allow workers to have asay in the way work is organised are vitalto the successful implementation of newtechnologies and processes. For innovationto flourish, work must be organised in away that enables new skills and employees’knowledge to be fully utilised and to createa culture of continuous innovation.

2.48. We will continue to encourage thegrowth of high performing organisationsby educating business, both employers andemployees, about the role of innovation.We also have to ensure that policies are inplace to support such developmentthrough the business support network andour work on inspirational leadership. We will publish a range of league tablesand best practice which help business tobusiness learning for example; The Times’s“100 Best Companies to Work For”, theDTI/interforum e-commerce awards, andthe DTI’s Value Added Scoreboard bothenable companies to benchmarkthemselves against others and identifypossible areas for improvement.

2.49. We will continue to promote goodemployment practices by supportingpartnership at work and championingflexible working practices. We will offer aninitial diagnostic to highlight areas whereimprovements might be most effective,and signpost companies to appropriate

INNOVATION REPORT46

25 Sisson (K) et al (1997) New Forms of Work Organisation:Can Europe realise its potential? European Foundationfor the Improvement of Living and Working Conditions.

23 What can the UK Learn from the Norweigan and Finnishexperience off attempts at Work Reorganisation, WarwickKeep & Payne (2002).

24 Productivity Report, CBI & TUC (2002)

support. In some cases the mostappropriate support will be advice from abusiness adviser. In other cases, a shortproject to implement a best practiceprocess will be appropriate, and we willprovide support to help companies accessaccredited experts to implement changewithin the organisation. We will also assistcompanies to measure the benefits ofimplementing best practice, and demonstratelong-term improvements in performance.

2.50. We will;


which trade unions can respond to the


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.



Pork Farms recognised the need toimprove productivity, improve its cultureand skills base by upskilling the employees,jointly working together towards worldclass manufacturing standards.

Although Pork Farms is the major brand,and a major supplier to the big foursupermarkets of both brand and own labelproduct, the market is very difficult withlimited opportunities for growth, and withthe commercial environment becomingevermore competitive, the continuedsurvival 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 highlyamongst the items on the employees’agenda.

Half day Dignity and Respect workshopswere held jointly for managers,supervisors, Transport and GeneralWorkers Union (TGWU) Union LearningRepresentatives, and Employee SupportWorkers and smaller workshops were heldfor the whole workforce to endorsecompany policy and offer support foranyone with issues of this nature.

Funding to support a large NVQprogramme was sought and the LSC iscurrently supporting a Technical ServicesNVQ level II. This has attracted 150candidates of whom 30% have completedtheir courses within 3 months of starting,showing both the employees’ desire fortraining and qualifications, as well as theability to deliver results, given supportand opportunity.

Throughout the process a weeklypartnership meeting has been held, madeup of a management group and the 4 senior TU representatives. A workingrelationship has been forged, and a muchmore open and straightforward dialoguehas emerged.

Benefits so far include:

� an increased level of trainingthroughout the factory;

� an open and straightforward dialoguebetween employees, the Trade Union(TU) and the business;

� increased levels of productivity in thefactory through joint problem solving;

� decreased absentee levels; and

� increased employee involvement indecision-making.

Box 2.8Pork Farms Ltd

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 foremployees to be informed and consultedabout decisions likely to lead to substantialchanges in work organisation. This mightinvolve discussions around training anddevelopment, investment in skills, culturalchanges, or human capital management –all beneficial to the development of highperformance workplaces and a higherskilled, more participative workforce.

2.52. We will continue to promote ACAS asan agent of positive change in theworkplace and a centre of excellence onworkplace practice. We will also continueto support the increase in Union LearningRepresentatives, given statutory backing bythis Government, as part of the process ofensuring lifelong learning is recognisedthroughout the economy.

Innovation in a diverse and inclusive work force

2.53. An increasingly diverse population isdriving demand for an equally diverserange of products and services, forexample specific products to help peoplewith impairment as a result of old age ordisability. A diverse work force is betterable to anticipate the demands of a diversemarket place and therefore create theinnovative product to meet these needs.For example, increasing the numbers ofdisabled people in design and engineeringoccupations would encourage the designand manufacture of product that reallywork for this sector of the population. Over half the growth in the working agepopulation in the next decade is expectedto come from ethnic minorities; we need toensure that we harness the innovativepotential of this pool of talent.

2.54. It is clear that if we are to raise bothproductivity levels and rates ofentrepreneurial activity within our economythen additional steps to promote femaleentrepreneurship need to be taken. As theGlobal Entrepreneurship Monitor 2001, UKExecutive Report states “one of the clearestways for the UK to increase its levels ofentrepreneurship would be by encouragingand supporting more women into business”.

INNOVATION REPORT48

Figure 2.1The Global Entrepreneurship Monitors (2002) prevalence rate of entrepreneurial activity

0

5

10

15

20

25

Women Men

New

Zea

lan

dM

exic

oK

ore

aU

nit

ed S

tate

sIc

elan

dC

anad

aA

ust

ralia

Irel

and

Sw

itze

rlan

dN

orw

ayH

un

gar

yD

enm

ark

Ital

yN

eth

erla

nd

sFi

nla

nd

Ger

man

yU

nit

ed K

ing

do

mP

ola

nd

Sp

ain

Sw

eden

Fran

ceB

elg

ium

Jap

anIn

dia

Arg

enti

na

Bra

zil

Ch

ina

Ch

ileS

ou

th A

fric

aIs

rael

Slo

ven

iaR

uss

iaT

hai

lan

dC

hin

ese

Tai

pei

Sin

gap

ore

Ho

ng

Ko

ng

Cro

atia

ALL

Co

un

trie

s

Note: Countries with an asterisk are OECD member countries. Source: OECD – Women Entrepreneurship, Issues & Policies 2003.


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 government-

sponsored business support to 40% of all

customers by 2006. In addition, we haverequired each RDA to develop an actionplan for women’s entrepreneurship inpartnership with Business Link, existingwomen’s enterprise initiatives and otherkey groups. The action plans will deliver arange of services including improvedbusiness advice and mentoring, networkingopportunities, and access to finance for thefull range of women-owned businesses,including social enterprises and communityinterest 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 specificadvice, training, networking, mentoringand, in some cases, incubation facilities forwomen entrepreneurs. To achieve this, we will target the new round of theEuropean EQUAL programme funding,starting in 2004, to develop this network.

2.57. In order to improve access to financefor 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 ofcurrent loans programmes targeted atwomen, such as the Bolton BusinessVentures fund, the Full Circle Fund, andinternational initiatives such as Women’sWorld Banking and the Finnish WomenEntrepreneurs Loan.


Box 2.9Women starting high-potential businesses around the world

There are difficulties in obtainingconsistent data across different countrieson the actual economic impact of womenentrepreneurship in most OECD countries– there is sufficient research to illustratethe challenge the UK faces.

� in the UK women comprise 26% of self-employed and own account workerscompared to 34% in Austria, 28.7% in Belgium, 33.4% in Canada, 32.3% inFinland, and 39.8% in Portugal26;

� in the United States, just over 40% ofbusiness 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 thanwomen28; and

� the peak age group at which peoplestart businesses is 35-44 for both menand women – however the differencebetween male and femaleentrepreneurial activity is also at itshighest 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.

2.58. Current evidence suggests thatwomen may be particularly interested inworking 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-buildingprogramme, 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.

INNOVATION REPORT50

29 http://www.sbs.gov.uk/content/consultations/womensframework.pdf.


Chapter 3Technology innovation

Developed countries around the worldhave recognised that success in the futurewill come from businesses increasing theadded-value from their products, processesand services. Government action toencourage businesses to develop andimplement new products and services hasbecome a high priority. Given this, the UKGovernment needs to harness its resourcesmore effectively in promoting technologicalinnovation. This chapter explains whataction has already been taken and how wewill build on that towards realising ourvision of the UK being a key knowledgehub in the global economy.

The UK has a strong Science, Engineeringand Technology (SET) base. But analysisshows that the UK record of knowledgetransfer and exploitation by business(measured, for example, by BusinessEnterprise Research and Development(BERD)) has generally been weak, thoughwith some notable exceptions such aspharmaceuticals, telecommunications andaerospace.

In recent years the Research Councils haveincreased significantly the rate ofknowledge transfer from their researchactivities. For example, the MedicalResearch Council (MRC) has a successfulventure capital fund and the Engineeringand Physical Sciences Research Council(EPSRC) undertakes 40% of its projects in collaboration with business. This represents about 25-30% (£140m) of itsbudget. But we believe that there are moreopportunities for much greater collaborationbetween the Research Councils andbusiness 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


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.

Initiatives in recent years, to increase thediffusion of research findings fromuniversities into the economy, have beenvery successful, and are being extended inEngland as part of the second round of theHigher Education Innovation Fund intomany more of the less research intensiveuniversities. We believe that an importantalternative mission in applied research,training and knowledge transfer exists insuch universities.

The Lambert Review of UK business-university collaboration has also identifiedcontinuing barriers to business-universitycollaboration, and has maderecommendations directed towardsremoving these barriers which complementthe actions identified in the InnovationReport.

However, we need to improve both thesupply side and the demand side of ourresearch performance. We need to put inplace a more strategic approach,embracing businesses; the research andknowledge transfer communities andgovernment more widely. As a first step,we have re-engineered the DTI technologysupport products, and drastically reducedtheir 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.

INNOVATION REPORT52

Summary

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 sector-

based ones.

� 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

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.



The need to improve the take-up of new technologies

3.1. The end of the 20th century witnesseda wave of scientific discovery andtechnology innovation in a range of areasthat have only just begun to change theway we work and interact with ourphysical, natural and social environments.For example, the development of theinternet and mobile communications havetransformed people’s access toinformation. Mapping the genome ofhumans and disease-causing agents, suchas the malaria parasites, using massivecomputing power, has opened the way towider, rapid screening and targeted, morecost effective treatment. Miniaturisationand our growing ability to operate at thenano scale has opened up the prospect ofeven greater performance and functionalityacross a wide range of products andservices, including electronics andhealthcare.

3.2. The pace of change is often quickerthan anticipated and the impacts arefundamental. The growth of completelynew industries such as biotechnology,software and the digital content industryin the UK, as well as the decline of moretraditional sectors, bear very real testimonyto this. For example during the 10 yearperiod 1992-2002 the number ofbiotechnology businessess in the UK hasincreased from some 165 to 425, andturnover has increased by over six fold(from £0.5 billion to £3.2 billion).

3.3. The UK has a strong indigenousknowledge source available to businessthrough the Science, Engineering andTechnology (SET) base and we do have astrong presence in some science-basedtechnologies such as pharmaceuticals,telecommunications and aerospace.However, our strength in science is notmatched by our overall technologyinnovation performance as seen inmeasures such as Business EnterpriseResearch and Development (BERD) orpatenting (see Chapter 1).

3.4. Technology provides a means ofdeveloping new products, processes andservices, or new ways of doing things. We need to address weaknesses in the innovation system that hold back thedevelopment and exploitation of newtechnologies. This applies to bothmanufacturing and service sectors. In thischapter, we discuss how Government canwork with businesses, the SET base,intermediaries, Regional DevelopmentAgencies (RDAs) and other stakeholders to drive technology innovation forwards.The aim is to increase businessengagement in the development of valueadding new products and services byfacilitating more collaboration.

Investment in the Science,Engineering and Technology (SET) base

3.5. Today the UK SET base is doing moreresearch more productively than ever. The market for science and research hasbecome increasingly global in recent yearsand UK universities have to competeinternationally for talent and researchcontracts if their departments are tomaintain or improve their world ranking.The Government has a responsibility toensure that the SET base (universitiestogether with Research Council Institutes)is maintained and developed so that itcontinues to deliver new basic researchand skills to underpin the rest of theinnovation system.

3.6. In the last two Spending Reviews theGovernment has recognised this problemand has provided for significant increasesin the overall resources for the SET base.Action has been taken to strengthen theresearch infrastructure. As a first step, theGovernment, in partnership with theWellcome Trust, launched the JointInfrastructure Fund (JIF) which injected£750m into universities for capital projects.To put infrastructure renewal anddevelopment on a sustainable footing, the

INNOVATION REPORT54


Government created a dedicated capitalfunding stream for science researchinfrastructure – the Science ResearchInvestment Fund (SRIF) – to provide £675mover 2002-04 and £1 billion for 2004-06. The Government has also increased thefunding for the Research Councils. In realterms, total funding for the SET base isexpected to increase by over 50% between1997/98 and 2004/05. We recognise theneed to maintain the balance between thisSET base funding and that for exploitationand applied research.

Promoting knowledge transfer

3.7. The SET base makes a majorcontribution to knowledge transfer throughthe publication of research results and thesupply of highly skilled people capable oftransferring and adapting codified and tacitknowledge. However, there is an additionalrole that Government can play in providingthe opportunities and incentives fortranslating quality UK science intocommercially successful applications.

3.8. Transfer of knowledge and know-howfrom Higher Education Institutions (HEIs)has been promoted through a number of programmes in recent years. Over the period 2001 to 2004 £110m ofpublic funding (see Box 3.1) is beinginvested 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 Fundis investing £33m over six years to fund thepre-seed development gap between thescientific discovery stage and the prototypeor proof of concept stage. Over the lastfour years, the fund has committed £19mto 83 projects.


Box 3.1Example of collaboration supported through HEI-industryknowledge transfer programmes

Bodymetrics is a London-based companythat is focussed on providing Body-Sizingand Visualisation solutions to clothingretailers. The company attracted its firstlarge scale customer, Selfridges in OxfordStreet, in May 2003. The company’sproducts help to reduce ‘returns’ forretailers, and enable novel directmarketing services. The company is aspin-off from the Department of ComputerScience, University College London(UCL), and the seed round financing wasfrom the University Challenge Fund

3.10 The SET base is responding well tothe demands for greater engagement withbusiness. The latest data, taken from theHigher Education Business Interactionsurvey (HEBI) for the academic year2000/011 shows that:

� the number of Intellectual Property (IP)licences granted to UK-based companies,on the basis of HEI-owned IP, increasedby 38% from 382 in 1999/2000 to 527 in2000/2001. Income from IP licenses morethan doubled between 1994/95 and2000/012;

� the number of spin-off firms establishedwith some HEI ownership increased by22% from 203 in 1999/2000 to 248 in2000/2001; and

� total new (initial) patents filed rose by 26% from 725 in 1999/2000 to 913 in2000/2001.

1 Higher Education Business Interaction Survey for theacademic year 2000/01,(http://www.hefce.ac.uk/pubs/hefce/2003/03_11.htm).

2 The source for this statistic is the Higher EducationStatistical Analysis (HESA).

3.11. To simplify arrangements foruniversities, HEIF is to be consolidated intoa permanent third stream of knowledgetransfer funding to universities, alongsidethat for teaching and research. Moremoney will be put into the second round ofHEIF (HEIF 2), which will be worth £81m in 2004/5 and £90m in 2005/6. The aim is tosimplify the funding landscape and ensurethat HEIs in England have greaterdiscretion and the flexibility to developtheir capacity in a way that best suits theirneeds and the needs of business.

3.12. The new expanded HEIF will have twoseparate allocations:

� to build on the successes in knowledgetransfer already being achieved by someHEIs; and

� a separate allocation to further broadenthe reach of knowledge transfer activitythrough support for less researchintensive university departments.

3.13. RDAs will play a particularlyimportant role in helping to directresources from HEIF2 so that theycontribute most effectively to regionaleconomic strategies: especially the fundsgoing to less research-intensiveuniversities. There are equivalentarrangements in Scotland and Wales.

3.14. Similarly, the Research Councils havefocussed considerable extra energy andresources on working with industry overthe past 4-5 years. Research Councils UKhas this year also set up a ResearchCouncil-wide knowledge transfer group tocoordinate and streamline many of theirindividual activities. Activities can beclassified under the following headings:

� Knowledge Generation in Collaboration

with Industry, for example, universityparticipation in past LINK programmes.The Engineering and Physical SciencesResearch Council (EPSRC) funds 40% of its research projects in collaborationwith industry, amounting to 25-30% of its research spend;

INNOVATION REPORT56

� Continuous Professional Development

(CPD);

� Knowledge Transfer through

networking, for example, participation inFaraday Partnerships;

� Development of Entrepreneurial Skills,for example, the Biotechnology andBiological Sciences Research Council(BBSRC) has developed theBiotechnology Young Entrepreneur’sScheme, which it has been running forover six years; and

� Promotion of Start-up Companies, forexample by the Medical ResearchCouncil (MRC) (see Box 3.2).

Box 3.2 Technology Transfer and the Medical Research Council (MRC)

MRC Technology transfer has been boostedin recent years. Through its technologytransfer arm, MRC Technology, MRC hasseen royalty income rise from £1.4m in 1997/9 to £15.1m this year. In 2002/03,41 new patent applications were filed, 32new licensing agreements completed and2 new spin-out companies, Iclectus Ltdand Etiologics Ltd, were established.MRC’s venture capital subsidiary, MVMhas raised over £150m, attractedinvestment from multi-national concernsand set up 14 companies.

3.15. We have already seen thatGovernment has done much to encourageknowledge transfer from the SET base –with measurable evidence of progress. We want to see industry pull through morefrom the science base and we, therefore,want to encourage the science base towork more closely with industry. We willask the Research Councils to explore waysof increasing industry collaboration further.


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


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 ofwhere industry has taken the lead inmaking University Technology Centres(UTCs) work (see Box 3.3). Proven benefitsfrom demand-pull collaboration will be afactor in deciding application programmepriorities.

3.18. The complementary Lambert Reviewof Business-University Collaboration hasidentified many specific barriers tocollaboration which still remain. Proposals in the Review for removing orreducing these are summarised in Box 3.4.The Government will respond to theseproposals by summer 2004.

Rolls-Royce established one of its firstUTCs at Imperial College. The UTC wascreated to address a critical need forenhanced capability in analysis andprediction of vibration in gas turbinecomponents and structures such as fanblading. From its inception the UTC had adedicated director at a senior level withinthe College (Professor David Ewins) as wellas a full-time team of post-doctoralresearch fellows and research students.

The group faced considerable problems insuccessfully addressing the UTCstechnology field. In their initial work withRolls-Royce, aimed at establishing a coreknowledge base on vibrationunderstanding, it became clear that therewas a major technological advantage to begained by developing a new suite ofcomputer codes for aero-elastic analysisand vibration prediction (now recognisedas the bench-mark analysis tool in itsclass.) As the research team developed

new and improved engineering knowledge,they were able to incorporate theirmodels into the latest releases of thesoftware code following full validationthrough Rolls-Royce rig and enginetesting. This model validation through‘hardware tests’ and ensuring the UTCstaff have visibility of, and involvement inthese tests, continues to be critical inmaintaining both an underpinning focusfor the UTC team and in transferring theirresults and methods into the companydesign teams and systems.

In this way the UTC outputs have beenused to address significant designchallenges in the Trent civil aero-engines,in ground based combustion systems andin the uniquely demanding design of thevertical lift system for the Joint StrikeFighter. Through projects such as thesethe technology developed by the UTC istangibly converted into a commercialbenefit to Rolls-Royce.

Box 3.3Imperial College University Technology Centre (UTC) in Vibration

A Technology Strategy to increase innovation

3.19. We have strengthened theperformance of the UK SET base. Policiesare in place to encourage knowledgetransfer and exploitation. Those directedtowards the UK SET base are discussedabove. Measures to help business exploitthe global knowledge base are discussed inChapter 7.

3.20. However, on their own, these policiesare unlikely to achieve the breadth anddepth of business engagement needed torealise significant improvements ininnovation performance. We haveincreased the incentives for knowledgecreators in the SET base to “push”technological knowledge towardscommercial exploitation. To be effective,these must be balanced by complementarypolicies to ensure that technologies withthe potential for strong economic, socialand environmental benefits are “pulled”through by business from the SET base.

3.21. There are some demand-sidemeasures in place (e.g. R&D Tax Credits).But these policies are not designedspecifically to focus efforts on thoseemerging and potentially disruptivetechnologies that have the greatestpotential to change market conditions orimprove the quality of life and theenvironment. Through the IGTs, industry is identifying significant demand-sideapplication needs (eg clinical trials proposalsfrom the bioscience IGT3 and new systemsdemonstrators for the aerospace IGT4). In considering these business priorities, weneed also to explore the opportunities forcollaborating across Government in areaswhere there are common underlyingactivities, such as the £4 billion spent outsidethe science budget on R&D, the £100billion plus that the public sector spendson procurement, or innovative solutions toclimate change, waste minimisation andother environmental challenges.

INNOVATION REPORT58

� A greater role for the RegionalDevelopment Agencies (RDAs) infacilitating knowledge transfer in their regions;

� A new funding stream for business-relevant research, along with increasedand improved “third stream” fundingfor knowledge transfer;

� Universities to develop a code ofgovernance and to demonstrate goodmanagement and strong performancein return for a lighter regulatory touchfrom Government and the FundingCouncils;

� Development of model contracts and aprotocol for IP to speed-up negotiations;

� Encouraging new forms of formal andinformal networks between businesspeople and academics, including theestablishment of a business-led R&Demployers’ forum; and

� Universities to provide moreinformation on student employability,and businesses to take a greater role ininfluencing university courses andcurricular.

Box 3.4Key proposals of the Lambert Reviewof Business-University Collaboration

3 “Bioscience 2015: Improving National Health, IncreasingNational Wealth” DTI, 2003.

4 An independent report on the future on the UK:Aerospace Industry, Aerospace Innovation and GrowthTeam, DTI, 2003.



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 bebusiness-led, market focussed and need ahigh level of stakeholder input. The processwill be based on the development ofstakeholder networks and advisory groups,which DTI will support and facilitate. There will be close collaboration withimportant established business networks,such as the Information Age Partnership,IGTs, technology intermediaries and PublicSector Research Establishments (PSREs).The DTI will also be pro-active in brokeringcollaboration and the development ofnetworks in sectors where these would bebeneficial but are not well established,such as high tech services, photonics andfuel cells. Stakeholders that we expect bothto contribute and benefit from the strategyprocess would include:

� individual businesses;

� business organisations (CBI, Chambersof Commerce, trade associations);

� Research and Technology Organisations(RTOs);

� Public Sector Research Establishments;

� professional institutes;

� Devolved Administrations (DAs);

� RDAs and the proposed regional Scienceand Industry Councils (see Chapter 6);

� Other Government Departments (OGDs);

� research Councils and universities; and

� Non Governmental Organisations (NGOs).

3.22. We can achieve this by bringingbusiness, Government, and the researchand knowledge transfer communitiestogether to identify the most importantemerging, potentially disruptivetechnologies on the basis of their potentialeconomic, social and environmentalbenefits for the UK. We then need todevelop collaborative, application-basedsolutions to technology development,drawing on the resources and instrumentsavailable to all parties. Business has told usthat a strategic approach in this area is ofhigh importance (Box 3.5).

Box 3.5Comment from CBI on importance of a Technology Strategy

“The development of a TechnologyStrategy for the UK is very welcome. This should be a Government strategythat is clearly led by business andfocuses on business priorities. Thestarting point for identifying thesepriorities should be our markets andcustomers and the products and servicesUK companies wish to develop for them.We also look forward to the proposeddevelopment of an innovation policyframework that can guide regionaleconomic strategies and national policymaking. This will be critical for achievingcoherence and scale while also allowingfor regional disparities to be addressed.”

3.25. A high level Technology StrategyBoard will ensure the technology prioritiesare market focussed and will advise on the broad allocation of resources to them.The Board will also act as a high levelforum 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 thisbasis. The main criteria for prioritising theTechnology Strategy themes will be:

� the degree to which technologies willhave an impact on sectors that are amajor UK strength (eg pharmaceuticalsand aerospace) or have high growthpotential;

� the degree to which a particulartechnology will have an impact on anumber of sectors;

� strength of the UK SET base relative toother countries;

� potential economic, social, quality of lifeand environmental benefits and scopefor cross-government collaboration (e.g. healthcare, energy);

� potential for spill-over benefits andwhether there is an underpinning marketfailure; and

� the degree to which there is scope foreffective action by Government or others.

We have identified a number of ways inwhich the Technology Strategy caninfluence government policy in addition tosetting priorities for DTI’s business supportprogrammes:

� providing an information source thatother Government Departments can useto inform their own R&D andprocurement priorities;

� providing a resource for technologysupport funded by RDAs and the DAs(which may involve collaborationbetween regions and/or with centralgovernment);

� signalling technologies where actionmight be needed to strengthen thesupply of technical skills;

� signalling technologies where particularattention to regulatory issues may bejustified (Chapter 5);

� generating a higher level of awarenessof IP issues (complementing the actionsin chapter 4);

� informing negotiation of EU Frameworkprogrammes; and

� informing the development of standardsand measurement (Chapter 4).

3.26. The benefits of the TechnologyStrategy will build over time. It has thepotential to become a key informationsource, including technology road maps,for all participants in the innovationsystem, strengthening co-ordination andimproving effectiveness at all levels.

3.27. Scottish Enterprise has also beenallocated funding by the Scottish Executivefor 3 Intermediary Technology Institutes(ITIs). A total of £450m over 10 years willbe spent on them. The 3 ITIs are based onthe sectoral areas of communicationtechnology and digital media “Techmedia”,energy, and life sciences. The activitieswithin the Institutes will reflect a strongpartnership between key global marketdrivers, local companies and researchers.The Institute will commission, from leadingresearchers, locally and worldwide, pre-competitive market focused research inthese key technologies. The resultingintellectual capital assets will be assessedand bundled within the Institutes with theprimary objective of building new highgrowth, market-focused, sustainabletechnology companies. Other channels forcommercial exploitation of IP may includelicensing to existing companies, whetherScottish, UK based or international, orselling IP to others willing to take ideas tothe market. A key aim is to increasesubstantially the level of exchange betweenacademia and the corporate sector in

INNOVATION REPORT60

Scotland, helping develop not just a transferof skills but also a more commercial andentrepreneurial culture and ethos in theScottish academic science base.

3.28. Of the countries we have reviewed,several operate some form of strategicselection of technologies and researchthemes. The models used by the Finnishtechnology agency (TEKES) and by Japanappear closest to our proposal.

More effective DTI support fortechnology innovation in businesses

3.29. Like other Governments around theworld, the UK Government providessupport for technology innovation whereprivate firms may under-invest inknowledge acquisition and developmentthrough R&D because of market or systemfailures. Such investment can be justifiedon the basis of:

� Spillover benefits – technologydevelopment in one firm may producebenefits elsewhere in the economy thatare not captured by the firm making theinvestment. Even collaborations withother firms may not be sufficient tocapture all the benefits because somewill arise in unanticipated areas (e.g.different sectors). These benefits canalso be social or environmental.

� High degrees of risk – the development ofthe technology may be uncertain, as maybe the commercial potential. Theseuncertainties are likely to be greatest atthe early stages in taking an idea frombasic research through to a commercialapplication, while the size of investmentcan be significantly greater through thesubsequent development and prototypingphases. There may be informationasymmetries between the firm wishingto innovate and potential backers. Access to finance may be particularlydifficult for Small and Medium-sizedEnterprises (SMEs) who are less likely tohave access to internal finance or equityfunding (discussed later in this Chapter).

� Barriers to effective co-ordination

between the SET base and business, andbetween different businesses.Technology applications are alsoincreasingly likely to cross sectors andthese linkages – especially betweenmanufacturing and service industries –may not be well appreciated ordeveloped. Government can facilitateknowledge transfer between businessesby enabling or creating networkingopportunities. Direct and indirectGovernment involvement can build trustbetween participants, e.g. by allayingconcerns about protection of IP.Government can also facilitate businesscollaboration for major technologyvalidation programmes cutting across arange of companies and potentiallysectors. The complementary LambertReview has made proposals to removeor reduce remaining barriers to business/university collaboration (see Box 3.4).

3.30. DTI currently provides about £200mof support each year through a range ofpublic-private partnerships andinterventions to help the technologicalinnovation activities of individual firms.Over the years, the number of schemes hasgrown and many of them have been onsuch a small scale that they have had verylittle impact. While some individualprogrammes have been successful inmeeting their objectives, the lack of focusmeans that important areas have not beencovered and that some less important oneshave received support. DTI’s support forinnovation and other activities has beenexpensive to administer and difficult andconfusing for companies trying to use it.



3.31. DTI has, therefore, changed itsapproach to business support, drawing on the available evidence to build on whatworks best3. As a result, the number of schemes will be reduced from over ahundred to around ten.

3.32. In future, support for technologicalinnovation will be available through fiveproducts, which build on the mostsuccessful elements of previous schemes.

The five products are:

� Collaborative R&D support is available to meet some of the costs and risksassociated with research and technologydevelopment, by facilitatingcollaboration between differentbusinesses and between business andthe SET base across the UK. Evaluationsof previous DTI programmes in this areapoint to significant benefits from theseinvestments. The focus of futureprogrammes, however, will be onbroader strategic areas of technologylikely to impact across sectors and keymarket priorities and thereby engagewith a broader range of industrialparticipants. The Collaborative R&Dproduct builds on the LINK scheme.Details of LINK programmes can befound in the Annex.

� Knowledge Transfer Networks willencourage the diffusion of new andexisting technology. The product buildsupon the existing Faraday Partnerships,which connect universities andindependent research organisations withbusiness and finance in key areas oftechnology. In the last 5 years we haveincreased the number of Faradaypartnership from 4 to 25. Today FaradayPartnerships bring together about 51university departments, 27 independentresearch organisations, 25 intermediaryorganisations and more than 2,000 firms,large and small, covering a wide range of

INNOVATION REPORT62

areas from advanced materials to farmanimal genetics. While this type ofnetworking will continue, the newarrangements provide for a wider, moreflexible range, of networking activities todeepen and broaden knowledge transfer into UK businesses and will focus onareas that have the potential to maximiseUK productivity. Details of FaradayPartnerships can be found in the Annex.

� Grant for R&D from June 2003 this hasbeen available for individuals and SMEs,and it enables them to meet some of thecosts of investing in technologyinnovation. The Grant for R&D is basedon, and enhances, the successful SmartAwards. In the last year in England, theGrant for R&D/Smart scheme hassupported 974 small businesses, offeringa total of £52.4m of grant funding. The levels of support allowed have beenincreased within European Communitystate aid rules. Access to the grant isalso being improved. This grant is forsupporting specific projects andtherefore complements the R&D taxcredit, which is only available afterexpenditure is incurred. Comparablesupport is provided in Scotland throughthe SMART, SPUR and SPUR PLUS .

� Grant for Investigating an Innovative

Idea – this is a pilot, offering help toSMEs in England to look objectively attheir 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 ofoutside experts.

� Knowledge Transfer Partnerships

provide direct support for knowledgetransfer by enabling universities andothers in the SET base across the UK towork with businesses using recentlyqualified people, like graduates, toundertake specific knowledge transferprojects in firms of all sizes. This buildson the former Teaching Company Scheme(TCS). The 900 TCS programmes inoperation at March 2003 representing over1000 graduate projects. Total Government

3 A review of the evaluation evidence for DTI innovationprogrammes is presented in the Annex of the analyticalreport.

expenditure in 2002/03 was over £24m.Successive reviews of TCS confirmed thevalue to business of the technologytransferred. 80% of companies involvedbelieve that knowledge transferredduring the placement was either new tothe firm or represented a considerableadvance of their knowledge base.Whereas TCS was largely restricted totwo-year projects, the new form ofsupport is more flexible, allowingprojects from between 1 and 3 years andencouraging a wider engagement ofknowledge based partners (such as FEcolleges).

� For Scotland: The Scottish Executivehave established a National IntellectualAssets Centre (NIAC) to help business byraising the profile of intellectual assetmanagement and providing expertadvice. There are also two new grant

schemes. The SME CollaborativeResearch (ScoRe) programme isdesigned to support R&D projects jointlyundertaken between public sectorresearch bodies (such as universities,Research Institutes, NHS Trusts) andScottish SMEs. The complementaryScottish Expertise Knowledge andInnovation Transfer (SEEKIT) programmewill provide support for research base-industry interface and outreach activitiesthat are not currently funded by existingmechanisms. This will lead to projectswhich encourage productive knowledgetransfer activities between SMEs,Research Institutes, Technology TransferOffices (TTO) and higher and furtherEducation Institutes.



� Nanotechnology, the importance ofwhich was highlighted in paragraph 3.1,simply groups under one heading arange of technologies that deal with theengineering and applications of verysmall particles approaching the sizes ofsmall molecules and atoms. There willbe exciting opportunities for micro- andnano-technological applications in mostindustries. The technology is alreadybeing applied in products as diverse assun creams and self cleaning glass.Advanced pharmaceutical applicationsmay include the monitoring of patientcondition by inserting nano-componentsinto the blood stream. The global marketfor nanotechnology is forecast to exceedUS$1000 billion within the next decade.Worldwide government funding fornanotechnology R&D last year aloneexceeded US$2 billion.

� In July 2003, Lord Sainsbury announcedthe latest DTI support fornanotechnology, a cash injection of £90m

over the next six years to help industryharness the commercial opportunitiesoffered by nanotechnology. £50m willbe spent on collaborative R&D and£40m on a new network of micro andnanotechnology facilities. This will helpbusiness build on the UK’s excellenttrack record in small-scale science andwin a share of this developing market.

� The DTI, RDAs and DAs have workedwith industry, universities and ResearchCouncils to provide businesses withaccess to a network of facilities forresearch, fabrication and prototyping,including those engaged in MicroNanoTechnologies in the UK, the UKMicrosystems and NanotechnologyNetwork (MNT). The DTI investment isexpected to secure additional industryand regional spending exceeding£200m and will provide a boost tofuture advanced manufacturing in the UK.

Box 3.6How Government is supporting the development of nanotechnology

INNOVATION REPORT64

� SCORE is aimed at encouragingbusinesses to undertake collaborativeresearch projects with the science base.

� SEEKIT provides support researchbase- industry interface and outreachactivities.

3.33. The Technology Strategy will increasethe coherence and effectiveness of DTIsupport for the exploitation of basictechnologies and applied research inemerging or ‘breakthrough’ technologieswhere the science is largely known but thepotential for exploitation and developmentis strong (Box 3.6). Specific themes will beidentified to which DTI will give priority inallocating resources for technologydevelopment, taking account of the EUFramework Programme (see Chapter 7,paragraphs 19 to 23 for details). Assistancewill largely be delivered through thebusiness support products for CollaborativeR&D and Knowledge Transfer Networks.

3.34. There are already precedents of howthis top-down approach is encouraginggreater business R&D activity. For example,

Ministry of Defence (MoD) has developedits technology strategy around technologythemes, which it calls “Towers ofExcellence”. As a result, it has launched aseries of collaborative technologyprogrammes with industry called DefenceTechnology Centres (DTCs). Encouragingly,these now involve a number of non-defence companies.

3.35. There are also strong examples ofhow an underlying technology can haveapplications in several different sectors.For example, the e-science (gridcomputing) programme was developed to help scientific researchers by linking uplarge computers and databases. The infrastructure created has already beenused by several sectors (medical,aerospace) to accelerate newdevelopments (Box 3.7). As grid computingtechnologies develop they will permitmaximum use of the internet by enablingbusinesses of all sizes to share resourcessuch as processing power and databaseaccess in secure, seamless, transparentand flexible ways. They will givebusinesses on-demand access to massive

Box 3.7Application of Grid Computing

Mammography Case Study: e-diamond

The e-diamond (Digital MammographyNational Database) project was establishedto deliver a prototype database ofstandardised mammograms for improveddiagnosis, training and epidemiologyimplemented using grid technology. It willbe used to aid the work of clinical andsupport staff involved in the NHS BreastScreening Programme. The project hasbeen carried out by an industry-academiccollaborative ICT R&D team working closelywith a range of clinical partners, from Guy’sand St Thomas’s NHS Trust to the SouthEast Scotland Breast Screening Centre.

The project uses the Standard MammogramForm (SMF) for image comparison.

A photographic-film mammogram’sappearance can vary with image capturesettings, making diagnosis based on filmdensity difficult and potentiallymisleading. However the SMFrepresentation gives reliable informationabout the amount of glandular tissue inthe breast. Grid technologies will providehigh-speed access to image data from acohort of patients across the UK andadvanced analytical and data-miningtools to aid diagnosis of the SMF underexamination. Moreover such a databasewill allow in-depth studies to determinethe impact of the environment andlifestyle on the development of breastcancer and aid clinicians in thedevelopment of better treatment options.

computing power and to functions such ascollaborative design, simulation, modellingand 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 theseprogrammes we will be looking particularlyfor collaboration between business(including business to business andbusinesses which traditionally have notparticipated in such programmes, the latterpoint is also one of the recommendationsin the Lambert Review), the ResearchCouncils, other Government Departmentsand technology intermediaries. Defenceand Aerospace Research Partnerships(DARPs) are one example of how suchcollaboration can leverage funding. In oneprogramme, DTI funding was tripled byadditional support from EPSRC, the MoDand industry. Some of these potentialsources of collaboration are discussed below.

3.38. The Technology Strategy Board willhelp in the identification of priority areasfor collaboration between DTI and theResearch Councils, and DTI will increaseco-funding of projects with the ResearchCouncils in order to facilitate theparticipation of a wider range of companiesin strategic technology investments.

Technology Intermediaries

3.39. To complement the above actions, we will work more closely with technologyintermediaries, whose role in technologydevelopment and transfer has beenundervalued in recent years in both policydevelopment and implementation.Technology intermediaries also have animportant role to play at regional level,working in partnership with RDAs and DAs.

3.40. The principal members of thetechnology intermediaries community arethe Research and TechnologyOrganisations (RTOs). They are a privatesector community of effective knowledge-transfer companies. Their objective isknowledge transfer to industry to fillknowledge gaps and to stimulateinnovation leading to higher value addedproducts and services.

3.41 Collectively the RTOs employ over20,000 scientists and engineers and haveannual turnover in excess of £2 billion. It isone of the largest communities of its kindin Europe and has over 30,000 clientsglobally. Their main activities include:

� support for in-company innovationchampions by in-sourcing expertise andthe required business model plusunderpinning technology to increaseproductivity;

� translating ‘raw’ knowledge into appliedopportunity, understood by companymanagement, and management of theintegration process;



� working with universities to develop anidea or competence into a businessproposition which will attract ‘second’stage funding and subsequentinvestment;

� working with universities to optimisespin-out or licensing and manage thecontracting process;

� auditing organisations for under-exploited innovative assets and bringingthem to market; and

� help for companies with low R&Dcapability.

The RTOs have also played a central role in establishing and managing FaradayPartnerships as part of the increasingemphasis on technology transfer andadaptation (see Knowledge TransferNetworks in paragraph 3.32, and Annex Ato the Report for further details).

3.42. This combination of roles andcapabilities makes intermediary bodiesvital in sharing knowledge – not just fromthe SET base to business, but also inhelping businesses develop the technologyto fruition. We will ensure that they areclosely involved in policy formation anddelivery, both as participants in thedevelopment and implementation of theTechnology Strategy and by encouragingtheir involvement in the applicationprogrammes.

Finance for technology innovation

3.43. If UK companies are to reach theirfull potential it is essential that they haveaccess to the finance they need to makethe investment necessary for futuresuccess and growth. This is an area ofstrength for the UK which has well-developed capital markets compared toother European countries, and is secondonly to the US in world terms. Overall the majority of UK businesses canaccess the finance they need to operatetheir business.

3.44. However, this generally positiveoverall picture does mask some underlyingproblems for certain businesses. For example, start-up businesses and thoselacking a track record sometimes facedifficulties in accessing debt finance, andSMEs with high growth potential are oftenunable to raise the relatively modestamounts of equity finance required to meettheir growth ambitions. The problemsmaybe more acute in particular areaswhere the risks are especially high (e.g.bioscience)4.

3.45. To help address these “finance gaps”the Government has implemented a rangeof targeted measures. For example, theSmall Firms Loan Guarantee Schemeprovides support for debt finance wherebusinesses lack the necessary collateralto obtain a loan. The Enterprise InvestmentScheme and Venture Capital Trusts offertax incentives to support investment inearly-stage businesses affected by thefinance gap.

3.46. Regional Venture Capital Funds havealso been set up across England. These areinvesting a total of up to £270m in SMEswith growth potential, backed by up to£80m of Government funding. Initialinvestments are restricted to amounts ofup to £250,000, with an opportunity for afollow-on investment of up to £250,000after six months. The Early-GrowthFunding Programme complements theregional funds by providing smalleramounts of risk capital, averaging around£50,000, for start-up and early-stagebusinesses. Similar arrangements are inplace in Scotland and Wales. For example,the new Scottish Co-investment Fund, with £20m from the Scottish Executive and£25m from European Regional DevelopmentFund (ERDF) funding, matched by theprivate sector, will help address the earlystage equity gap in Scotland.

INNOVATION REPORT66

4 Reference: innovation review Bioscience 2015 report.

3.47. Recognising that the long lead timesand uncertainties associated withinvestment in technology-based firms maylead to particular problems in accessingfunding, the Government also supports theUK High-Technology Fund – a ‘fund offunds’ supporting early-stage high-technology businesses across the UK. TheGovernment acts as ‘cornerstone’ investor,leveraging over £100m of additional privatesector investment. Complementing thisfund, the University Challenge Fundprovides capital for early-stage financing toenable universities to develop businessproposals and spin-off companies. It aimsto strengthen public-private partnershipsby supporting the transfer of science,engineering and technology research tocommercial application.

3.48. While these targeted interventionseach make an important contribution instimulating an increased supply of riskcapital to smaller businesses, theGovernment recognises that someinnovative firms seeking modest sums ofcapital are still affected by the equity gap.The Government has recently publishedthe findings of its Bridging the Finance Gapconsultation, which take into account theviews expressed by a wide range ofinterested parties from the business andfinance communities.

3.49. In the light of these findings, theGovernment has announced a series ofproposals to build on the success of itsexisting interventions. It has alsoannounced its intention to establish a‘pathfinder’ round of Enterprise CapitalFunds (ECFs), based on the Small BusinessInvestment Company model that hasplayed an important role in channeling riskcapital to smaller companies in the USover the past 45 years. ECFs will becommercial venture funds, investing acombination of private and public capital inUK-based companies that are affected bythe equity gap.

3.50. To encourage greater levels ofinvestment in R&D, which is a crucialcomponent of innovation, the Governmenthas also introduced R&D Tax Credits forSMEs and large companies and is currentlyconsulting on possible ways to improveand clarify the definition of R&D for Taxpurposes.

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 techbusinesses. Increased funding for thisscheme will be one of our priorities for the future.



INNOVATION REPORT68


Chapter 4National innovation assets

In addition to a strong science, engineeringand technology (SET) base, the UK has a number of well established institutionsthat have performed essential and highlyspecialised functions for government,business and researchers.

These institutions are a potentialknowledge bank for business enablingthem to develop new products andservices. They constitute our nationalinnovation assets. They can helpbusinesses and we need to increase theimpact they have.

Every product and service we use dependson accurate, often leading-edgemeasurement and instrumentation.Without accurate and consistentmeasurement, these goods and servicescould not be reproduced or commerciallyexploited and scientific research would beseverely constrained.

The National Measurement System is theinfrastructure which underpins thestandards of measurement and developsthe measurement technology that is a keydriver of innovation in our economy. TheNPL (National Physical Laboratory), LGC(the former Laboratory of the GovernmentChemist), NEL (the former NationalEngineering Laboratory) and the NWML(National Weights & Measures Laboratory)are our National Measurement Institutes(NMIs) and the principal suppliers of thesestandards and technical services. Theseinstitutions are acknowledged as beingamongst 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.

� 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 anddesigns) is also crucial for innovating firms.Our IP framework is managed by thePatent Office, though much policydevelopment takes place at European andglobal levels. The Patent Office has alsodeveloped strong links with the NationalIntellectual Assets Centre (NIAC) in Scotland.

Businesses need to make well-informeddecisions on how to manage their IP andguard against infringements of theirintellectual 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 for1998-2000 found that 60% of UKbusinesses that are engaged in thedevelopment of new products, services orprocesses gain useful information fromstandards and regulations. Standards alsohelp innovation by diffusing technicalknowledge. A National StandardisationStrategic Framework (NSSF) has beendeveloped and will be implemented withthe Confederation of British Industry (CBI),British Standards Institution (BSI) and otherpartners to provide industry with animproved service.

INNOVATION REPORT70

Summary


National Measurement System (NMS)

4.1. The National Measurement System(NMS) is the infrastructure that underpinsthe measurement standards and developsthe measurement technology essential toour modern economy. The NMS includesthe National Physical Laboratory (NPL),LGC (the former Laboratory of theGovernment Chemist), NEL (the formerNational Engineering Laboratory) and theNWML (National Weights & MeasuresLaboratory), all of which supply DTI fundedstandards and technical services.

4.2. Measurement standards are publicgoods. Firms have little incentive todevelop these since they cannot excludeother firms from the benefits. Furthermore,there are efficiency gains to be made fromthe use of standard measurements.Although productivity benefits of the NMSare largely taken for granted, they aresubstantial and widespread1. One indicativeestimate suggests that metrology underpinsaround £5 billion of Gross DomesticProduct (GDP2). The NMS is particularlyimportant to the UK’s instrumentationsector, itself worth £8.1 billion. NMSensures that its technical research can giveUK manufacturers a technical edge andalso secures quality of life benefits – suchas better control of therapeutic radiationdosages for cancer patients.


Box 4.1Standards project removes barriers to innovation

An NMS project has been instrumental in revising Standard ISO 51673, therebyreducing some of the technical barriers in North Sea oil and gas installations.NEL analysed the results of US researchto prove that gas installations could beradically redesigned, but still remainwithin the accuracy (and safety)requirements, and then ensured that theredesign was incorporated into a revisionof the Standard. The advantages arisingfrom the revised Standard’s specificationare many: reduced material costs,manufacturing savings, platform spaceand weight reductions, all of whichcontribute to significant overall financialbenefits. It has been estimated, forinstance, that in one typical installation(named Rhum), AMEC stand to achieve a saving of approximately £1m. These savings were made on just onetieback to one platform and there areseveral hundred such installations in the North Sea alone. The UK oil and gasindustry is now set to exploit theadvantages of the revised Standard and benefit from its consequential hugecost savings.

4.3. The NMS impacts on innovationperformance by helping develop newtechnological knowledge and improvingthe capacity of firms to absorb and exploitit. The laboratories and other organisationsthat make up the NMS also providepartners for networking and collaboration.NPL has, for example, always been at theforefront of groundbreaking collaborativeresearch, which in turn is applied bybusiness.

3 Measurement of fluid flow by means of pressuredifferential devices.

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 andeconomic benefit of the UK National MeasurementSystem, report for DTI, 8 November.

INNOVATION REPORT72

Box 4.2High fliers

The National Physical Laboratory (NPL)has teamed up with Virgin AtlanticAirways, the Mullard Space ScienceLaboratory (MSSL) and the Civil AviationAuthority (CAA) to measure and interpretthe effect, if any, of cosmic ray doses onaircrew. Measurement of these doses hasnow been made on over seventy flightsall over the world. This team bringstogether expertise in airline management(Virgin), expertise in solar and cosmic rayphysics (MSSL), legislative and medicalknowledge (CAA) and skills in instrumentcalibration and interpretation (NPL).

4.4. The NMS also has a strong trackrecord of addressing more immediateindustrial problems and supporting ourquality of life. It also works in partnershipwith smaller UK manufacturers to helpdevelop innovative products.

Box 4.3Helping small manufacturers to innovate

Millbrook Instruments, a Lancashirebased instrumentation companyemploying 6 people, has recentlylaunched the MiniSIMS, a popular newdesktop instrument for secondary ionmass spectroscopy (a technique used forthe surface analysis of materials and avital tool in the development of newmaterials). The charge neutralisationsystem used by this chemical microscope(used by analytical laboratories) is basedon developments in measurements byNPL scientists as a result of DTI fundedNMS research. These productimprovements would not have beenpossible without NPL’s work, whichenabled Millbrook staff to develop in-house expertise very quickly. Since Millbrook started offering thecharge neutralisation system as anaccessory to the MiniSIMS, they havehad 100% take up from customers.Already 15 instruments have been sold –worth around £1m of sales.

4.5. The challenge now is to ensure thatNMS programmes address the needs ofemerging technologies and that UK-basedcompanies take up its services. We have toraise awareness, and bring its expertise to the attention of a much wider audience,encouraging the kind of exchange with theNMS that has characterised the transfer ofknowledge between business and othercentres 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.

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 willinvolve SMEs receiving free measurementconsultancy from the most relevantNational Measurement Institute, in order to help them refine near-market prototypeproducts.

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 businesspeople to the facilities and expertiseavailable inside the NMIs and allow NMIstaff to gain a better understanding of UKbusiness priorities.

Addressing new technologies

4.10. Leading-edge industrial innovationdepends on exploiting new scientificdevelopments, but unless it can bemeasured, a process or product cannot bereproduced or commercially exploited.That is why other world leading NMIs(such as the PTB in Germany and the NISTin the US) are developing advancedmeasurement capabilities to enable theirindustries to compete at the leading edge.We need to take advantage of our strongscience base and of our world-class NMSto exploit the emerging and disruptivetechnologies, which hold such promise forthe future.

4.11. We will set up a visionary new

programme on Measurement for Emerging

Technologies. This will address work onnanotechnology and the biosciences andwill be closely integrated into the

Technology Strategy. The aim will be toprovide UK industry with world-leadingmeasurement tools to drive forwardinnovation 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 itsinvestment. For many innovators, access to finance is impossible without IPprotection. Furthermore, the patent regimehelps to spread technological knowledgebecause applicants have to discloseinformation about their invention. IP lawsaim to strike the right balance betweenprotecting new developments andstimulating competition. The UK, throughthe Patent Office, works to ensure that itsown IP regime and the internationalframework balance these two objectives.

4.14. New developments can be protectedthrough formal IPR, such as copyright,trademarks, designs and patents, for whichthe Patent Office has responsibility.Informal methods, such as know-how,speed to market, confidentiality agreements,and secrecy, also play a role. Whichoptions, or combinations, are chosen willdepend on a number of factors, not leastthe level of awareness of those options.

4.15. The following schematic illustrateshow IPRs can interact with the generation,development and protection of ideas,including using information availablethrough IPR.



The IP framework

4.16. The Patent Office will continue towork to improve the cost-effectiveness ofthe IPR system internationally andnationally, by building on successes suchas the agreement to streamline and updatethe European Patent Convention; theimplementation of EU-wide design rights;and the recently announced agreementsimproving the Madrid protocol system forinternational trademark registration.

Use of the IP system by UK business

4.17. The UK has a strong system ofrights4, and strong institutions5, but mostUK businesses, including large firms, donot place a great deal of emphasis onformal methods of IP protection (see figure4.2). It may be that informal methods arepreferable in some circumstances.

4.18. However UK businesses, especiallySMEs, may not have a grasp of thefundamentals in order to make informeddecisions about which options to chooserelative to their competitors. For example,patent-based indicators show that the UKpatenting activity lags a long way behindthe larger economies, such as Japan andthe US [see chapter 1]. In the manufacturingsector, the UK average for the proportion ofinnovators that had applied for at least onepatent in a three year reference period1994-96 was 18%, compared to an EUaverage of 25%6. A similar picture emergesfrom trademark data7.

4.19. Large firms are more likely to take out a patent than SMEs8 and moreenterprises in manufacturing take outpatents than those in services. Thosemanufacturing industries where firms takeout most patents are also those that havethe highest R&D intensity.

INNOVATION REPORT74

Figure 4.1IPR in Innovation

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.

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).

£ £ £ £

£ D $idea something to sell

(product or service)profits

Innovation – the exploitation of new ideas

information fromexisting IPR

recognising andprotecting IPR

raising cash fordevelopment using

IPR as security

searching IPR to findpotential business

or research partnersor employees

avoiding orlicensing other

peoples' IPR

checkingcompetitor

activity(includingtheir IPR)

enforcingIPR

maintainingIPR

adding IPR asproduct/service

is developed


4.20. While this highlights the importanceof patents to many manufacturers, othertypes of IPR are more relevant to othersectors. Service-related businesses relyless on patentable technology and more on brand protection and copyright. The creative industries are heavily dependenton copyright.

IP awareness

4.21. While such evidence requires carefulinterpretation, a consistent picture isemerging: UK companies allocate a lowerlevel of resources to innovation activities(such as investment in R&D) and this is reflected in lower rates of patent andtrademark activity. It seems likely thatsome firms, particularly SMEs, lackknowledge of IPR and consequently do not make informed decisions.


Box 4.4New antennas for mobiles

Wireless innovator Sarantel Limited haspatented a new antenna, PowerHelix®,that provides a consistently low level ofelectromagnetic energy absorption formobile phone users. Other benefits include:extended battery life; improved signalreception and improved sound quality.

Before going too far into productdevelopment, Sarantel first carried outpatent searches to ensure that the ideathey were seeking to exploit was notalready covered by others’ products, andonce they had a prototype, made surethey further protected it by registering itsname as a trademark. They are nowexploiting its extensively patentedtechnology through licensing bothpatents and trademarks.

Figure 4.2Enterprises who attach importance to IP protection

Percentage of enterprises who attach some importance to IP protection - large firms (500+ employees) (CIS 1998 - 2000)

0

10

20

30

40

50

60

70

Regi

stra

tion

of d

esig

n

Trad

emar

ks

Pate

nts

Copy

right

Conf

iden

tialit

y

agre

emen

ts

Secr

ecy

Com

plex

ityof

des

ign

Lead

-tim

e

adva

ntag

e

Formal Informal

Enforcement

4.23. Formal IPR can be rendered ineffectiveunless owners take strong enforcementaction. It is often regarded as expensive and time consuming, especially for SMEswho often lack the means to both policeand enforce IPR. Resorting to litigation is expensive and risky: all too often largercompanies make use of this fact to preventsmaller innovators from succeeding, or toavoid paying their dues. Such difficultiescan have an influence on decisions to adoptformal IPR.

4.24. Some of the difficulties of enforcementhave been underlined by the work of theGovernment’s high-level independentadvisory body, the Intellectual PropertyAdvisory Committee (IPAC)9. The committeehas recommended several concrete measures(some listed below) but has not advocatedsweeping 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 theUK’s success stories, accounting for 8.2% of Gross Value Added in 2001 and 1.9mjobs in 200210. The UK is a world leader in many fields, such as music, in which it isestimated that it has 10-15% of the worldmarket, second only to the US. Creativeindustries depend on IPR and recognise that the protection and enforcement of IPRassets are a key to their competitiveness.

INNOVATION REPORT76

4.22. To improve IPR awareness we will:

� target SMEs to ensure they can use the IP

system effectively. This will build on thesuccess of current initiatives such as HMCustoms and Excise-led Business AdviceOpen Days, and will involve the provisionof training in IP to business advisors andlaunching a project providing free nationalIP advice in the second half of 2004. In Scotland the coordination of awarenessraising in the areas of formal andinformal IPR will be undertaken by thePatent Office and the NIAC respectively;

� improve the available evidence base onIP use and awareness as well as develop

appropriate metrics to monitor andassess progress; and

� target ‘innovators of the future’ such asbusiness studies, design and technologystudents and entrepreneurs to raise aware-ness of IP. The first element is a revisedversion of the successful ‘THINK kit’, dueto be launched by Spring 2004. Furtherspecific proposals will be tabled in thePatent Office Corporate Plan by April 2004.

Box 4.5Building on success

The Patent Office’s new educationalresource, ‘THINK kit’, has been anunprecedented success in puttingintellectual property at the top of thelearning agenda. Within a month of itslaunch at the Education Show in March2003 over 51% of UK secondary schoolshad requested a copy. THINK kit is acomprehensive resource, which covers allforms of IP and has been developed for14 – 16 year old design and technologyand business studies students. Itcomprises five case studies relating toAudi®, Virgin®, Pop Idol®, Adidas® and I CCan and these are supported by a full setof teachers’ notes.

The Patent Office will be building on thissuccess and developing the product touse in business schools.

9 IPAC is an advisory body formed in 2001 to giveindependent advice to the Government on intellectualproperty issues (http://www.intellectual-property.gov.uk/ipac)

10 According to http://www.culture.gov.uk/creative_industries/default.htm


4.27. The music and content sectors inparticular face a specific and potentiallylife-threatening commercial and technicalchallenge from new digital distributionmethods. IPR, especially copyright, can bemore difficult to protect in digital thanprinted media, and the prevalence of illegalfile sharing means these sectors have toovercome huge hurdles in educatingconsumers and developing innovationbusiness models, for example, strongalternatives to free down-loads. TheBroadband Stakeholder Group (BSG), theGovernment’s key advisory body onpromoting broadband services, is workingwith the Digital Content Forum and othersto build consensus between stakeholderson how to proceed. The Government hasalso taken steps to implement the EUDirective, “ Copyright and related rights inthe Information Society”, (2001/29/EEC). It came into force on 31 October 2003, andupdates and harmonises legal protectionfor digital rights management systems.

IP crime

4.28. Criminal proceedings can arise whereinfringement of IPR raises public interestissues, such as consumer deception orsafety concerns, or where there iscommercial piracy. The Patent Office hasbeen working closely with others toimprove actions taken against IP crime, forexample, training on IP for TradingStandards Officers, and working with theNational Criminal Intelligence Service toimprove 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 underpinnedcommercial activity and trade for centuriesbut they have never been as important asthey are today. Standards range from fullformal standards such as for CD-ROMs11

or safety of machinery in the workplace12

to informal ones e.g. on knowledgemanagement13 to de facto industry onese.g. MS Windows™.

Box 4.6Mobile gas cylinder standards

Transporting gases safely has long beenan issue with different countries settingtheir own requirements on gas pressuresand thicknesses of the container walls.Working closely with UK industry, aBritish Standard was developed using a design formula that results in thinnerwalls, and so lighter weight gas cylinders.After much research taking account ofadvanced manufacturing processes andnew materials, and communication of thefindings outside the UK, a family ofinternational standards drawing on theBritish one was agreed which opens upglobal markets for safer and moreefficient cylinders.

4.31. A recent study by DIN14, the GermanInstitute for Standardisation, estimated thatstandards made a very significantcontribution to growth in Germany,accounting for up to around 1⁄3 – 1 percentagepoint of the average annual economicgrowth rate.

11 BS 4783-7:1993: Storage, transportation and maintenanceof media for use in data processing and informationstorage. Recommendations for optical data disks.

12 BS EN 50144-2-5 Safety of hand-held electric motoroperated tools – circular saws and circular knives. This is one of over 400 such standards that enablemanufacturers meet the requirements of the Supply ofMachinery (Safety) Regulations (SI 1992/3073) asamended (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.

4.32. The Community Innovation Surveyfor 1998-2000 found that 60% of UKbusinesses engaged in the development ofnew products, services or processes,gained useful information from standardsand regulations, and 12% found those tobe of significant importance. Enterprisesusing any form of standard or regulation asknowledge inputs were more likely tointroduce new products (including services)or processes than businesses that did notdraw on standards.

4.33. Standards also help innovation bydiffusing technical knowledge. Newinformation thus reaches a much widerrange of companies, enabling them toinnovate. The standard then becomes abenchmark in the market on the basis ofwhich leading companies can launch thenext developments.

4.34. However, the standardisationinfrastructure needs to remain relevant tobusiness and other stakeholders (includingGovernment itself as a major purchaser aswell as a regulator) both in terms of therange of businesses catered for and thestandardisation services offered. This isparticularly true for new or rapidlydeveloping technologies and, increasingly,for the service industries15. Value-addedproducts and services based uponstandards (such as guidance on usingstandards) can enable business achievegreater competitiveness.

4.35. The challenge now is to raise theperformance of the standardisation systemand to adapt it fully to the modern needs of business, Government and consumers.This will involve raising understanding andawareness within the UK of the commercialand strategic importance of standards, and increasing the number of businesseswith standards on their strategic agenda.The recently launched National

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 developand maintain business engagement withthe strategic development of UKstandardisation priorities, by working withthe CBI’s Sectoral Affairs and Enterprisegroups and the UK Trade Associations;

� improving the efficiency of the processesfor developing formal standards;

� developing value-added products (e.g.guides) and services, based onstandards, that can help UK business be more competitive;

� developing an action plan to ensure thatstandards create a competitiveadvantage for small business, workingwith BSI’s Small Business PolicyCommittee, including accessingstandards and understanding how theycan be applied to SMEs;

� establishing an international network ofcontacts – equipping commercial staff intargeted UK embassies and consulateswith the knowledge to identify threatsand opportunities presented bystandards in the markets into which UKbusinesses wish to export (please referto chapter 7). The output will inform thenational, European and internationalstandards development strategies,focusing on reducing technical barriersto trade in priority markets and countriesfor UK business;

� developing with BSI an internet basedstandards alert service for exporters,alerting them to potential new marketsthat have adopted common standards; and

� demonstrating the benefits of standardsto businesses both in terms of product orservice developments and of businessprocesses.

INNOVATION REPORT78

15 Other examples are BS 7960: 1999 – Code of practice fordoor stewards/supervisors [otherwise known asbouncers]; and BS 7911: 2003 – Specification fororganisations conducting market research; PD 5000:1999– code of practice for electronic documents as legallyadmissible evidence; BS EN 13816: 2000 – guidelines forthe definition, targeting and measurement of servicequality in public passenger transport. 16 www.nssf.info


Chapter 5Innovation policies across Government

More innovative approaches can lead tomore effective solutions for Government as well as business. So Government needsto “Think Innovation” as it develops andimplements policies and uses its hugepower as a purchaser and provider ofservices to improve people’s well beingthrough better public services.

Recognising the innovation challenge






this report.

The economic analysis accompanying thisreport has identified the role played by demanding customers as one of theseven critical success factors that contributeto the UK’s innovation performance. The public sector, central and localgovernment combined, purchased £109billion worth of goods and services in2001-02. The public sector accounts for anestimated 55% of all spend in the UK on ITservices and systems, and more than 30%of all construction spend.

By acting as an intelligent customer andone open to new approaches, Governmentpurchasing can provide an incentive forcompanies to develop new products,processes and services. In turn, innovativeproducts and services can helpGovernment achieve better value formoney by improving the quality of publicservices and reducing whole-life costs.

� In order to build on existing initiatives

the Office of Government Commerce

(OGC) will produce best practice


procurement staff on capturing creativity

from suppliers by March 2004.

Barriers to, and opportunities for, innovationwill differ from one market to another, andso need to be addressed at market level.

� 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 purchasessignificant amounts of research anddevelopment (R&D), it has proved difficultfor small and medium sized enterprises(SMEs) to get access to research funding.The Government established the SmallBusiness Research Initiative (SBRI) in 2001to tackle this, and set Government

INNOVATION REPORT80

Summary

Departments the target of purchasing atleast 2.5% of their R&D from SMEs by2004/05. This was inspired by theequivalent scheme in the USA, which hasplayed an important part in encouragingthe 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 andimplements regulations can also have animpact on the ability of businesses toinnovate. In recent years the Governmenthas established a number of new centralarrangements to ensure that betterregulation principles are applied rigorously.But the effects of regulation are usuallylong term and dynamic. As a result, somepolicy makers are ill-equipped to assess theimpact of any particular policy orregulation 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 toincrease innovation through more use ofoutcome-based regulation, that is regulationwhich defines the policy objectives, nothow they should be achieved. This givescompanies greater scope to innovate tocomply with the regulations using the most effective technological solutions orbusiness 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 cross-

Government 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 wantto see more of the research results flowinto the exchange of knowledge betweenbusiness and research organisations andend up in the pool of ideas and inventionsavailable 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.



Promoting innovation across Government

5.1. The Government needs to “ThinkInnovation” because what is true forbusiness is true for Government: moreinnovative approaches can lead to moreeffective solutions. Government has animpact on society, not only through itspolicies, but also through its directactivities.

5.2. This chapter focuses particularly on thepotential impact that Government can haveon innovation through three key activities:

� Government’s role as a customer – thepublic sector purchased £109 billionworth of goods and services in 2001-02;

� Government’s role as a regulator – theway it designs and implements health,safety, product and environmentalregulations; and

� Government’s role as a source of newknowledge – in the research anddevelopment that it carries out, and itsexploitation for wealth creation.

5.3. However there are other areas in whichGovernment needs to take action in orderfor the UK to make the increase in itsinnovation performance necessary toachieve productivity levels as high as thoseof our competitors.

5.4. For example we outlined in Chapter 3our plans for a Technology Strategy inorder to identify the most importantemerging and potentially disruptivetechnologies on the basis of their potentialeconomic, social and environmentalbenefits for the UK. Government has a roleto play in adopting and promoting the useof new technologies in order to deliver itsown policy objectives, for example, puttingin place an appropriate infrastructure, the delivery of healthcare and learning, and in defence.

INNOVATION REPORT82

Box 5.1Innovative delivery of Governmentservices: the internet

The Office of the e-Envoy is part of thePrime Minister’s Delivery and Reformteam based in the Cabinet Office. It wasset up in September 1999 in response tothe Performance and Innovation Unit’sreport, “[email protected]” and isheaded 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 ofpublic services and achieve long termcost savings by joining-up onlineGovernment services around the needs of customers.

The e-Envoy is responsible for ensuringthat all Government services are availableelectronically by 2005 with key servicesachieving high levels of use. TheGovernment has also set a deadline of2005 for local government to becomecompletely capable of providing electronicservices. As a result there is a strongincentive for the businesses that supplythem – many of which are SMEs – to adopte-procurement systems. Businessinvestment in integrated Information andCommunication Technologies (ICT)reduces costs, increases productivity andstimulates new product development,whilst local authorities will benefit frominnovative, tailored solutions at lower cost.

The e-Envoy also works to meet thePrime Minister’s target for internet accessfor all who want it by 2005 and supportswork across Government to develop theUK as a world leader for electronicbusiness. Latest figures published by theOffice of National Statistics show thatinternet access in the UK continues togrow. 56% of the population are nowregular users of the internet and 48% ofall households have internet access – five times the number of homesconnected in 1998.

5.5. We also need to ensure that Governmentstrives to achieve the managerial culturerecommended in Chapter 2, so that oursenior managers are adept at managingknowledge, have a good understanding ofentrepreneurial activity, and work in aframework in which they can take managedrisks. We must lead by example indeveloping the skills of the public sectorworkforce to be able to innovate andincrease productivity – a significant aim of the cross-Government Skills Strategy.

5.6. In addition, because Government’spartnerships with industry are vested in awide range of departments, manyGovernment Departments have a role toplay in driving up the level of innovation inthe sectors which they partner (Table 5.1).Through sector sponsorship, a GovernmentDepartment acts as a bridge between theindustry and Government as a whole. Such sponsorship alerts Government toindustry concerns and opportunities, and also explains the Government agendato business.

5.7. Recognising the innovation challenge






this report.

Government’s role as a customer

5.8. The economic analysis accompanyingthis report1 has identified the role playedby demanding customers as one of theseven critical success factors thatcontribute to the UK’s innovationperformance. The public sector (central and local Government combined)purchased £109 billion worth of goods andservices in 2001-022. For some sectors ofUK industry, the Government is the singlemost 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 morethan 30% of all construction spend(excluding Private Finance Initiatives)3.Other sectors for which the Government is a major customer include defenceequipment, educational supplies,healthcare supplies and services, as well as custodial and associated services.

5.9. By acting as an intelligent customerand one open to new approaches,Government can require suppliers tocompete on the basis of criteria thatemphasise the innovative features ofgoods or services. If Government acts asan ‘early adopter’ by contracting forproducts and services in sufficient volume,it can give industry enough of a market tojustify investment in new skills, equipmentor R&D. Hence a Government contractcould strengthen a company’s long-terminnovative capability and competitivenessin other markets. In turn, innovativeproducts and services help Governmentachieve better value for money, i.e. thebest balance of product or serviceperformance, quality and whole life cost to meet the user requirement.



1 DTI Economics Paper No. 7, publication 17 November2003.

2 Public Expenditure Statistical Analyses, HM Treasury andOffice of National Statistics, May 2003. http://www.hm-treasury.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 REPORT84

4 Devolved Administrations also have sponsorship responsibilities.

Table 5.1Government Department responsibilities for promoting the competitiveness of different sectors of the economy include:

Government Department4 Sponsored industries

Department of Culture, Alcohol and entertainmentMedia and Sport Architecture and design

ArtsBroadcasting industries, including film and musicCultural propertyGambling and racingHistoric environmentLibraries and CommunitiesMuseums and GalleriesNational LotterySportTourism

Department for the AgricultureEnvironment, Food Food & Drinkand Rural Affairs (Defra) Water industry

FisheriesHorticulture 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 servicesAirportsShippingPortsRailwaysFreight and logistics

Department of Trade Aerospace & Defenceand Industry Automotive

BioscienceChemicalsCommunications NetworksConstructionConsumer Goods & ServicesE-businessElectronicsEnergyMarineMaterials & EngineeringPublishing & digital content (including computer games and graphic design)Security & Fire protection equipmentSoftware & Computer services

Department for Education and Skills services, (including Schools, Education and Skills Youth and Lifelong Learning)



Box 5.2Defence Industrial Policy

The Government launched its DefenceIndustrial Policy in October 2002. This policy is aimed at enhancing thecompetitiveness and sustainability of theUK defence industry, while continuing toprovide high quality equipment to the UK Armed Forces at best long-term valuefor money. In seeking to maximise the UK economic benefits of our spend ondefence equipment it requires that widerfactors, including industrial benefits, arefully considered in the UK’s defencecapability procurement. The policy alsohelps underline DTI’s commitment to a UK-based manufacturing industry able todesign and build the latest generation ofadvanced defence equipment.

In the light of this new policy, DTI engagedfully in the Government’s decision topurchase BAE SYSTEMS next-generationHawk 128 advanced jet trainer. An analysisof wider factors in this procurement,notably an export market worth potentiallymore than £2 billion, its importance to the

regional economy in East Yorkshire, andthe contribution of UK sub-systemsuppliers, notably on engines, systemsand high-value manufactured components,contributed to this decision. BAE SYSTEMSwere able to convince the Governmentthat the latest generation of Hawk, whichwill be fitted with an open systemarchitecture and state-of-the-art avionics,would satisfy MoDs demandingrequirement to train pilots for emergingfront line fast jet aircraft such as theEurofighter Typhoon and the US/UK JointStrike Fighter. The Defence IndustrialPolicy commits the Government tobecome more innovative in its majordefence equipment procurements. By fully considering wider factors at theoutset of the procurement strategy beforecompanies have committed millions tobids, and being more transparent withbidders on how we analyse wider factors,the procurement strategies derivedshould establish outcomes that arebroadly acceptable to all stakeholders.

Box 5.3Innovative traffic management systems

Delivering clearer and faster information todrivers is vital to increasing safety as wellas reducing congestion on our road andrail transport networks. Variable colours,graphics and enhanced lighting are beingbuilt into the design of more intelligenttraffic management systems. Hence additional and more effective LightEmitting Diode (LED) light sources will beneeded in any given area.

VMS Ltd of Gateshead, winners of theQueen’s Award for Enterprise in 2002developed a new reflector design thatcaptures 90% of the light emitted from LEDs– a fourfold increase in efficiency. The newdesign reduces the number of LEDs

needed, allowing more information to bedisplayed and refreshed 70 times faster.

To gain board approval for such a major R&D investment in new productdevelopment, the company had todemonstrate its market potential. The company’s largest customer is theHighways Agency, which imposes criteriabased on value for money in awardinglong-term framework contracts. Meetingthe criteria set by such a large customerpersuaded the board that the investmentwas justified and led to contracts with the Highways Agency worth £25m andexports in the order of £6m.

CURRENT POSITION

5.10. In researching the difficulties ofcapturing creativity from suppliers, theOffice of Government Commerce (OGC)identified a number of barriers to securingthe most innovative solutions toGovernment contracts:

� some businesses feel that theGovernment is not good atcommunicating its longer-term plansto the market. As a result, some of the more creative firms are unwilling to orient their long-term investmentstrategy to the objective of securingGovernment contracts;

� companies are concerned thatinsufficient notice of demand andinadequate attention to their lead timesmake it hard to develop and deliverinnovative products or services;

� the perception that public sector buyersare risk averse may deter potentialsuppliers from bringing forwardinnovative proposals if they anticipaterejection in favour of lower costsolutions. There are also concerns aboutpossible loss of Intellectual Property; and

� potential suppliers can also bediscouraged by the time it takes to bidfor major Government contracts, not tomention the cost and bureaucracyassociated with the process. Theseconditions have a disproportionateimpact on Small and Medium-sizedEnterprises (SMEs).

A STRATEGIC APPROACH TO PUBLIC PROCUREMENT

5.11. The Government is taking steps toimprove access and reduce costs andbureaucracy for suppliers5. But there is morewe can do to create a better understandingbetween the public and private sectorabout the Government’s longer-term,

INNOVATION REPORT86

5 http://www.brtf.gov.uk/taskforce/reports/entrypages/smeprocurement.html and http://www.cabinet-office.gov.uk/ regulation

strategic needs and the demands they placeon the market, and to develop aprocurement culture that recognises thepotential for innovative solutions to delivervalue for money. Better planning ofGovernment procurement would help toaddress some of the issues highlightedabove by giving potential suppliers greaterscope for capacity planning.

Box 5.4Public sector broadband requirements

DTI, in partnership with the RDAs, issetting up bodies in each of the Englishregions to take charge of buyingbroadband services for regional publicsector customers. The new RegionalAggregation Bodies will be fullyoperational from January 2004.The Department for Education and Skills(DfES) and the NHS are their firstcustomers, wiring up schools, hospitalsand GP’s surgeries. See box 5.6 for moredetails of how broadband will contributeto better delivery of care and services inthe NHS.

Joining up broadband requirements at a regional level prevents duplication ofeffort and presents a clear business casefor service providers to consider. This isbound to raise investment in broadbandinfrastructure and extend availability intonew areas.

Broadband represents a fundamentalinfrastructure for private and publicsectors alike. It will allow them to developinnovative ways of transforming businessprocesses and delivering services.

5.12. In the Autumn 2002 Pre-Budget Reportthe Chancellor asked OGC to examine whatfurther steps could be taken to increasecompetition and long term capacityplanning in markets where Governmenthas significant purchasing power. Ministershave now accepted the OGC report and an


action plan has been published as part ofthis year’s Pre-Budget Report. This actionplan will deliver real progress on the issuesidentified by business, in particular thechallenges of increasing transparency ofpublic sector demand to enable long termplanning and increasing the professionalismof 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 offollowing up the work of the EnvironmentalIGT, we have set up a group to identifyopportunities for using public sectorprocurement to stimulate innovation in theenvironmental industries.

EMBEDDING BEST PRACTICE IN PROCUREMENT

5.14. Many best-practice procurementtechniques can actively stimulate suppliersand promote innovation:

� early supplier involvement allowsdesigners and suppliers to apply theircreativity from the outset rather thanbeing faced with a rigid pre-conceivedapproach;

� partnering stimulates trust and sharedobjectives which can lead to innovativesolutions;

� the use of output or outcome based

specifications for example, when theycan make intelligent use of standardrather than bespoke specifications,suppliers are able to innovate indeveloping alternative solutions; and

� good management of the tendering

process can ensure contractors havesufficient time and opportunity todevelop innovative proposals.


Box 5.5Attitudes to innovative ideas

In conjunction with defence-related tradeassociations, the Ministry of Defence(MoD) has drawn up a Code of Practice toencourage unsolicited innovativeproposals. The Code:

� provides a clear point of contact withinMoD to whom the proposal should beaddressed;

� sets out MoD’s internal handlingprocedure, including the timescales forproviding a response;

� explains the key components aninnovative proposal should contain;and

� is published on the MoD website.

The Code is backed up by an internalpolicy, mandating staff compliance withthe Code. An up-to-date database ofinnovative proposals contains details ofeach proposal’s status and the technicalexpert to whom it had been assigned.

5.15. The public sector is already workinghard to bring best practice in procurementacross the public sector up to the higheststandard. For example, central GovernmentDepartments are now required to introduceCentres of Excellence for projectmanagement, and procurement and projectpractitioners are using the OGC’sSuccessful Delivery Toolkit. The Office ofthe Deputy Prime Minister (ODPM)launched the National Strategy for LocalGovernment Procurement in October 2003.

5.16. There are many examples of goodpractice from which we should draw outlessons learnt and adopt them across thepublic sector. For example, the ‘AchievingExcellence in Construction’ initiative,launched in 1999 and managed by OGC,set challenging targets for GovernmentDepartments to become best practiceclients through the use of integratedprocurement routes and performance-based, incentivised contracts.

5.17. NHS Estates has embraced theseprinciples fully and has developed themfurther with the introduction of the ProCure21 partnering framework. NHS ProCure 21uses a standardised approach to theprocurement of healthcare facilities whichis based upon long-term relationships withsupply chains to deliver tangible benefits toboth sides: certainty of building cost and

completion time; higher building designquality; and value for money over thewhole life of a facility.

5.18. Increasing environmental concernsalso act as a stimulus for innovation. The scope for using Government purchasingto help deliver sustainable developmentobjectives is greatly under-utilised atpresent and a much more ambitiousapproach is needed. There is now a greatercross-Government focus on procuringinnovative solutions to, for example,reducing waste and improving energyefficiency. New action in this area wasannounced in October 2003 in response tothe report of the cross-GovernmentSustainable Procurement Group6. We willcontinue to build on these foundations.

INNOVATION REPORT88

The National Programme for InformationTechnology (IT) in the NHS focuses on thekey developments that will make asignificant difference to improving thepatient experience and the delivery of careand services. There are four keydeliverables: electronic appointmentbooking, an electronic care records service,electronic transmission of prescriptionsand an underpinning IT infrastructure.Broadband services will be brought via theRegional Aggregation Bodies (see Box 5.4).The Government investment in the NHSNational Programme for IT and theestablishment of the Regional AggregationBodies will act as a catalyst for innovation,which will contribute to ongoingmodernisation of the NHS. In many waysthe local context – in local hospitals, GPsurgeries and communities – is wheremuch of the untapped potential forinnovation exists in the NHS.

Recognising this potential, and the needto develop national enduring informationservices that support innovative ways ofdelivering healthcare, the NHSInformation Authority has been workingclosely with a wide range of keystakeholders – including the DTI, the NHSModernisation Agency, industry, theBroadband Stakeholder Group,universities, NHS staff and patients – todevelop an operational plan for a newInnovation Centre. If agreed, theInnovation Centre would support andwork with current and future local NHS‘Innovation Hubs’ to create a HealthcareInnovation Network that will identify localinnovations and develop them into anational platform quickly and efficientlyfor the benefit of the whole of the NHS.The focus would be on new ways ofdelivering healthcare and the associatedinformation requirements to supportdecision-making by clinicians and patients.

Box 5.6NHS Information Authority Innovation Centre – an emerging opportunity

6 http://www.sustainable-development.gov.uk/sdig//improving/partf/report03/index.html


5.19. In order to build on existing

initiatives OGC will produce best practice


procurement staff on capturing creativity

from suppliers by March 2004. An ongoingreview of existing guidance will be takenforward in tandem. The new and amendedguidance will be fed into relevant trainingand development programmes.

5.20. Cross-cutting activity of this sortneeds to be complemented by targetedaction in key public sector markets. Barriers to, and opportunities for,innovation will differ from one market toanother, and so need to be addressed at market level. We will start by looking intwo sectors: construction; and telecare andtelemedicine 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 projectwill draw from expert knowledge in thesupply side to identify how best to releasethe innovation in the supply chain. We will be looking to identify the scope forinnovations such as standardisation ofproducts and design which can drive outwaste in the development and delivery of solutions for the NHS and developmentof products and materials that better meetNHS business needs in ensuring patientand staff well-being.

5.22. Telecare and telemedicine products –such as movement sensors, fall alarms andimplants, and the systems that enableremote monitoring of symptoms – will playa vital role in helping people maintain theirhealth and independence whilst relievingpressure on hospital and residential care.The NHS and social services have a target


Box 5.7Kit for Purpose project

Focusing on education, and the £1 billionannual spending on learning resources,furniture and equipment, the DesignCouncil initiative Kit for Purpose, backedby the DfES, is working with selectedschools in England to create newprocurement models allowing them tobuy what they need to fulfil their learninggoals, not just make stop-gap purchasesto replace broken and damagedequipment. The learning from this three-year project will be made available toother schools, allowing them to securebetter value for money.

Based on in-depth work with teachers,pupils and administrators to examineattitudes to learning environments andissues related to equipping them, Kit forPurpose has already led to the creation,through the project’s Furniture for theFuture competition, of new schoolfurniture designed to have a positiveimpact on learning and attainment.Designers and manufacturers werechallenged to join forces and produceinnovative, yet affordable concepts – andtwo of the winning designs (unveiled inFebruary 2003) have been ordered byschools.

The Orbital Workstation, a radicalreworking of the traditional classroomchair and table, featuring a swivel seatthat orbits round an adjustable table, hasbeen so well received in school trials thatthe manufacturer Keen Group Ltd, isintending to export it to the US, Japan,Scandinavia and Europe.

to increase by 50% the number of peoplebenefiting from community equipmentservices (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 ResearchInitiative (SBRI)

5.23. While the public sector purchasessignificant amounts of R&D, it has proveddifficult for SMEs to get access to researchfunding.

5.24. There may be a number of reasonsfor this, including:

� the cost and bureaucracy of thetendering process (as for otherGovernment contracts);

� some SMEs are start-ups and as suchoften fail to meet financial tests forpotential contractors;

� the number of contracts is low relative tothe number of potential bidders;

� some Government R&D requirements(principally those of the ResearchCouncils) have previously been letprimarily to universities; and

� there may be resistance to dealing withunknown companies.

5.25. The Government established theSmall Business Research Initiative (SBRI) in 2001 in order to increase the success of smaller businesses in obtainingcontracts from government bodies toconduct research and development. The Government Departments involvedhave a target of purchasing at least 2.5% of their R&D from SMEs by 2004/5.

5.26. The SBRI aims to increase the size ofthe market available to small firms whosebusinesses are based upon providing R&D,as well as to encourage other SMEs toincrease their R&D capabilities, and tocreate opportunities for new knowledge-based start-up companies. The SBRI iscomplemented by other forms of support,for developing the research capability ofSMEs, such as the DTI’s R&D Grant.

5.27. Some progress has been made, withDEFRA, the DoH, and the Engineering andPhysical Sciences Research Council(EPSRC) already meeting or exceeding the2.5% target. Over 230 companies haveregistered with the SBRI web site(www.sbri.org.uk) and received informationabout contracts suited to their capabilities.

5.28. But it is clear that we need to domore. The Government is determined tofulfil its objective and we will improve theeffectiveness of the SBRI by:

� strengthening the co-ordination andmonitoring of the programme;

� providing an on-line tender alert servicepossibly via the Business Link website(www.businesslink.gov.uk), andproviding data on levels of interest and conversion rate;

� re-engaging with all the participatingdepartments and other public sectororganisations to ensure full support forSBRI’s aims; the SBS will activelypromote the scheme with otherGovernment Departments;

� extending the collection of SBRI dataacross departments and publishing theresults on an annual basis;

� working with departments to identifypackages of work for which SMEs couldbid; and

� investigating how the wider range ofR&D opportunities – e.g. those arisingfrom RDAs and local authorities – couldbe included within the scope of SBRI.

INNOVATION REPORT90


5.30. By focusing on the desired outcomeof regulations rather than prescribing indetail how things should be done, we cando more to reduce any constraints oninnovation that regulation can introduce.Businesses themselves should have a sayin how best to comply with regulations. An outcome-based approach to regulationoffers businesses the opportunity to workwith Government in designing regulationsand their means of implementation thatcould provide more cost effective solutionsfor both the private and public sectors.

BETTER REGULATION PROCESSES –THINK INNOVATION

5.31. In recent years the Government hasestablished several new centralarrangements to apply rigorously betterregulation principles. For instance, theBetter Regulation Task Force (BRTF),established in 1997, serves as anindependent advisory group toGovernment; the Panel for RegulatoryAccountability (1999) takes an overall view of regulatory implications of the Government’s regulatory plans; theRegulatory Reform Ministers have beenappointed in each GovernmentDepartment; and the Regulatory ReformAct of April 2001 is a new tool to make iteasier for Government to amendburdensome primary legislation.

5.32. It is hard to quantify the effects ofregulation on innovation because they areusually long-term and dynamic. We wouldlike to encourage policy makers to takeaccount of the possible effects of theirproposals on businesses, so that optionsthat provide businesses with greaterflexibility are developed and considered asalternatives to more prescriptive regulatoryframeworks. Greater awareness, betterguidance and higher quality interactionwith business could reduce negativeregulatory impacts on innovation.


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 asthe type of industry involved all affectincentives to introduce new products orservices. In this section of the report wefocus on areas of regulation where there isa clear dynamic between a firm’sprocesses, products and services and theregulatory environment. This is particularlythe case in environmental, health andsafety and product regulations.

Box 5.8Regulation of embryo research

An example of regulations that enhancethe opportunities for innovation is thelegislation on embryo research, whichhas evolved over 20 years of public andParliamentary debate. Followingextensive consultation with the public,business, the research base and manyother stakeholders, the UK has reached anational consensus on this issue and hasdevised a framework which sets out arigorous and effective licensing system inwhich this research can take place. This isregulated by the Human Fertilisation andEmbryology Authority. This clearregulatory framework gives the UK anadvantage over many other countries inwhich the debate is still underway, andhas enabled the UK research base tocarry out world-class research at thefrontiers of scientific discovery.

5.33. To improve regulatory decision-

making 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 thepolicy objectives, not how they should beachieved. Business faces the responsibility– and has the choice – about how tocomply; it also has the freedom to explorenew ways of meeting regulatory demands.

5.35. There are good examples of outcome-based regulation to build on both at theEuropean 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’sNew Approach has created an outcome-based framework. The fundamentalprinciple of the New Approach is to confinelegislative intervention to a set of“Essential Requirements” that are of publicinterest. The technical detailedspecifications are delegated to standardsetting organisations. Maximum flexibilityis given to manufacturers over the choiceof technical solutions they use to meet therequirements.

INNOVATION REPORT92

Box 5.9Outcome-based regulation

A good example of outcome-basedregulation is the Contaminated LandRegime, introduced in England in April2000. The regime does not necessarilyinvolve formal enforcement or specifyremediation actions. The regulator cansecure remediation of a contaminatedsite through mutual agreement withthose responsible on what actions arerequired to meet the remediationstandard. These actions are identifiedwithin a framework of guidance and takeaccount of a range of considerationsincluding site-specific circumstances. In practice this means it is open to the“problem holder” or contractor topropose how to deal with the site, andhave the proposals recognised by theregulator and carried out in the agreedmanner. This allows any number ofdifferent approaches to be used includingsome innovative remediation techniquessuch as:

� landfarming, windrows and biopiling –controlled processes that use aerobicmicrobial action to degrade organiccontaminants from soil;

� phyto-remediation – using plants to take metals out of the soil;

� reactive barriers – such as filteringthrough clay particles;

� addition of oxygen or hydrogengenerating compounds;

� solidification stabilisation – the use of compounds to encapsulate and immobilise contaminants; and

� air sparging – technology that reducesconcentrations of volatile constituentsin petroleum products that areabsorbed to soils and dissolved ingroundwater.

As a result the UK is one of the worldleaders in this area of research anddevelopment.

5.36. Applied initially to product safetyregulation, the New Approach now extendsto other areas of product regulation, suchas electromagnetic compatibility andcertain noise and engine emission limits.We can learn from and adapt the principlesof the New Approach and explore how theoutcome-based approach could be appliedto more areas of environmental regulationand 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 theDepartment of the Environment, Food andRural Affairs (Defra), the Cabinet Office,Department for Transport (DfT) and theEnvironment Agency (EA), working inconsultation with business and otherstakeholders, including Non-GovernmentalOrganisations (NGOs), will start by lookingat three areas: implementation of theIntegrated Pollution Prevention and Control(IPPC) Directive; eco-design of products;and vehicle emission regulations.

� the IPPC Directive regulates theemissions from a wide range ofindustrial installations in the EU throughintegrated prevention or minimisation ofair, water and soil pollution, with a viewto achieving a high level of protection forthe environment as a whole. A keyfeature of the Directive is its requirementthat permit conditions for eachinstallation must be based upon theapplication of best available techniques(BAT) – a concept that by definitionencourages innovative approaches tocost-effective pollution control. IPPC isbeing implemented sector by sector, andwill eventually apply to some 7000installations in the UK. The project teamwill identify best practice from work withthose sectors for which the Directive hasalready been implemented and applythis to the way in which the Directive isimplemented in further sectors;

� the eco-design of products so as tominimise their impact on theenvironment over the whole life-cycle of production, use and disposal is vital to delivering savings in energy use and carbon dioxide (CO2) emissions andpromote better resource use and higherlevels of recycling. This presents bothchallenges and opportunities formanufacturers. Here we will examinehow different policy instruments,including alternatives to regulation suchas voluntary codes, can deliver outcomesin a way which maximises the scope for innovation;

� vehicle emissions are dealt with by bothregulatory and non-regulatory regimeswith required EU emissions standardsfor air quality, and voluntary agreementson new car CO2 emissions. The impactsof these different approaches oninnovation will be assessed, lookingforward to new, more stringent standardslikely in future and technologicaldevelopments already in the pipeline; and

� the project team will complete its workby 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 onpolicy ideas in the EU at the earliest stagesis critical. We shall step up our work acrossGovernment and with business stakeholdersto track EU policy development and toengage strategically with the EuropeanCommission and Parliament. Theseinstitutions are now committed to theapplication of Better Regulation disciplines,with impact assessments for all proposalsand the Competitiveness Council ofMinisters has a new and clear remit toensure EU regulation takes proper accountof competitiveness impacts. In addition, we will review the New Approach to seewhere improvements could be made andwill use the changes taking place in Europeto push for the wider application ofoutcome-based principles.



5.39. Health and safety is another areawhere, in some circumstances, regulationcan have a positive impact on innovationand business performance and where theneed to control risks in a cost effectivemanner has led to major innovations in the form of new systems and technologies.Enterprising approaches to controlling risk,including safety risks, are net drivers ofinnovation. The advice and help of theHealth 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 alsohelps provide public reassurance andacceptability of new technologies andprocesses. DTI and HSE have a mutualinterest in emerging technologies and newtypes of business or market opportunities.

INNOVATION REPORT94

The safety of vehicle airbags

The main safety concerns related to theintroduction of explosive devices into workenvironments unfamiliar with such articles,e.g. car plants, garages and scrap yards.Their supply, conveyance and storageraised issues of compliance withexplosives legislation. HSE worked withHonda and Vauxhall to identify the safestway to handle and store airbags on theassembly lines, and how best to packagethem so that they could be classified asnon-hazardous for transport.

The work resulted in innovative methods ofpacking and storage, which limited therestrictions on normal manufacturingpractices and imposed no undue burdenson industry in terms of new plant andequipment. They were shared with the restof the industry through the Society forMotor Vehicle Manufacturers and Tradersand the Motor Industry ResearchAssociation. HSE also worked with theVehicle Builders and Repairers Associationin identifying safe procedures for thedisposal of these devices. HSE haspublished guidance based on the work.

The Hydrogen Economy

HSE is playing a key role in researchingnew technologies, promoting innovationand providing expert guidance on best

practice. Many of the organisationsdeveloping “hydrogen economy”technologies are SMEs, frequentlywithout access to specialist advice on thespecial hazards of hydrogen. HSE hasbeen actively involved in many of thegroundbreaking demonstration projectsthat are in progress across the UK.Official guidance has been aimedspecifically at helping industry tounderstand the hazards of hydrogen andhow the risks can be minimised. This document received widespreadacclaim during the consultation phaseand will be published.

HSE is also involved in leading edgeresearch into aspects of “hydrogeneconomy” technologies fundamental tohealth and safety. NaturalHy, a major EUfunded pan-European project with over50 participating organisations, is looking at the possible use of existing natural gaspipes to transport safely mixtures ofhydrogen and natural gas. Several largeenergy companies, the US Department of Energy and HSE are researching howthe risks from retail of hydrogendispensing can be minimised. The resultsof this work will be fundamental to thedesign of the first generation of roadsidehydrogen filling stations.

Box 5.10Examples of innovation in health and safety

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 immenseamount in R&D both in the Science,Engineering and Technology base (SETbase) and for its own needs, especially inhealth and defence. We want to see moreof the research results flow into theexchange of knowledge between businessand research and technology organizationsand into the pool of ideas and inventionsavailable for commercial exploitation.

5.43. Government spent some £7 billion on R&D in 2001/02 and this is expected toincrease to nearly £9 billion by 2004/057.Less than half of this expenditure funds the SET base through OST and the Higherand Further Education Funding Councils(HEFC). Most of the remainder is researchand development designed to meet thespecific needs of Government Departmentsin areas such as defence and health8.

5.44. As demonstrated in Chapter 3,Research Councils, HEFC and universitieshave been increasing their efforts toimprove the exchange of knowledgebetween universities and businesses, whilstmaintaining the primary purpose offunding university research. However,much less attention has been given tomaking fuller use of Government R&D interms of the wider economic goals ofknowledge transfer and commercialexploitation, again without diluting theR&D missions of individual GovernmentDepartments.

5.45. In recent years two initiatives havegone some way towards strengtheningknowledge transfer and exploitation: the “wider markets” policy (introduced in1998 and revised in 2002)9 andrecommendations 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, GovernmentLaboratories, and the NHS Trusts) into thecommercial arena.11

5.46. The Public Sector ResearchExploitation Fund was established inresponse to the Baker Report to helprealise the economic potential of PSREs.Awards worth £10m were made in October2001 (involving some 15 institutions and 10 lead NHS Trusts). £15m for a secondround of the Public Sector ResearchExploitation Fund was provided in theSpending Review 2002.



9 ‘Selling Government services into wider markets’, policy guidance note, HM Treasury, July 1998http://www.hm-treasury.gov.uk/mediastore/otherfiles/sgswm.pdf; ‘Selling into wider markets: a policy note forpublic bodies’, HM Treasury, December 2002,http://www.partnershipsuk.org.uk/widermarkets/Guidance/2003_1.pdf

10 ‘Creating knowledge creating wealth – realising theeconomic potential of public sector researchestablishments’, a report by John Baker to the Ministerfor 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 SectorScience’, report by National Audit Office,www.nao.gov.uk/pn/01-02/0102580.html

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 besome £400m in 2001/02).

5.47. The 2002 Cross-Cutting Review ofScience and Research set out practicalrecommendations to ensure that theresearch which Government Departmentscommission in support of policy makingand delivery is on a sound footing – and inline with the Guidelines on ScientificAdvice and Policy Making. The report alsorecommended that departments ensurethat knowledge transfer objectives areincluded in their Science and Innovationstrategies, that the action points arisingfrom the Baker agenda are addressed, andthat the PSREs, which departments areresponsible, have frameworks in place forthe commercial exploitation of their work.These plans need to be completed as partof the 2004 Government Spending Review(SR2004). This is something that the newMinisterial Committee will be monitoring

closely. Departments will work to removethose barriers to exploitation that lie withintheir own control, within the bounds ofcommercial and other factors which canrestrict demand for the results ofGovernment research in the private sector.

INNOVATION REPORT96

The Defence Diversification Agency (DDA),part of the MoD, was set up in 1999 topromote cross-fertilisation of technologybetween defence and industry. The DDAprovides companies with access to theUK’s world-leading defence science andtechnology (S&T) base, a major repositoryof technical knowledge and expertise thatcan help them innovate and grow.Additionally, the DDA brings innovativetechnology developed within civil industryto the attention of the MoD. Four years on,this Government initiative can point to animpressive track record.

The DDA has established a highly effectivenetwork of experienced technology transferprofessionals throughout the UK, operatingat regional level. They stimulate thedemand for technology by helpingbusinesses identify growth opportunitiesthat can be fulfilled through access toknowledge, resource and facilities fromwithin the defence S&T base.

This unique demand-led approach – firstfind the business problem then matchthe, largely off-the-shelf, solution to it –has already proved highly successful andbenefited some 2,300 companies.

Examples of technology transfer carriedout by the DDA include:

� application of advanced optics fromwithin the stealth domain to improvepaint curing on pencils;

� joint defence/industry development of a non-contact sensor for remoteanalysis of contaminants; and

� development and testing of novelpolymers for use in building products.

The DDA network operation and itsproven technology transfer methodologyare applicable to other research institutes.Pilot projects have been agreed withPartnerships UK and with PA Technologyto explore these wider opportunities.

Box 5.11How the Defence Diversification Agency helps business access defence technology


Chapter 6Regional innovation

The Government is committed toincreasing the prosperity of all regionswhile narrowing inter- and intra-regionaldisparities. The Devolved Administrations(DAs) have all published innovationstrategies or economic strategies whichinclude innovation. The RegionalDevelopment Agencies (RDAs) in Englandhave also put an increasing focus oninnovation. They have used the RegionalInnovation Fund set up in 2001 to initiate atotal of 91 incubator and science/businesspark development projects, and in 2002/03have committed more than £250m of theirfunds over a number of years to scienceand innovation projects.

It is essential that there is a clearunderstanding on the respectiveresponsibilities of Central Government and the RDAs. It is also necessary that the RDAs have the expertise and sources of advice to develop and implement theinnovation elements of their regionaleconomic 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

Clusters play a key role in drivingeconomic growth and innovation inlocalities, cities and regions. They create anenvironment which encourages companiesto adopt innovation-based corporatestrategies and which facilitates knowledgesharing. The evidence suggests thatGovernments cannot create clusters, butGovernment and RDAs can help removethe 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 inthe regions, encourage inward investmentand provide high value-added, long-termjobs, we need to support the developmentof knowledge intensive businesses.

� 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.

In Scotland, the Regional Selective

Assistance (RSA) scheme has been

re-focused, including more emphasis on

quality projects and high growth firms.

INNOVATION REPORT98

Summary

1 House of Lords Select Committee on Science andTechnology - Science and the RDAs: Setting the RegionalAgenda, 3 July 2003, HL Paper 140-Ihttp://www.publications.parliament.uk/pa/ld200203/ldselect/ldsctech/140/140.pdf

2 Ecotec Research and Consulting Limited were appointedby the DTI, HMT and the RDAs in 2002 to produce a reportto identify the criteria for the successful development ofsuccessful clusters.

The Manufacturing Advisory Service (MAS)is a good example of an expert advisoryprogramme delivered at a regional level.MAS is also available, to varying degrees,within the DAs. In its first nine months ithas been extremely successful. It has had8600 enquiries, carried out 1000 diagnosticand advisory visits, and was involved in200 ongoing in-depth consultancy projects.5500 manufacturers also attended regionaltraining 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.



Problems posed by regional differences

6.1. The economic gaps between differentparts of the UK create imbalances in ourstandard of living, distortions in thenational labour market – especially in theavailability of skilled workers – andweaknesses in our business performance.The result is wide disparities in output perhead between regions (Figure 6.1)reflecting significant differences both inemployment rates and in productivity.While the focus here is on regionaldifferences, it is important to note that,within the same region, there are oftensubstantial differences in living standardsand economic structures.

6.2. This disparity is also apparent bylooking at regional performance againstsome of the critical innovation successfactors. In terms of capacity to absorb andexploit knowledge, there is wide variation inthe distribution of highly qualified labouracross the UK, with the highestconcentrations in London, Scotland, theSouth East and South West (Figure 6.2).

6.3. The picture is little different for theemployment of qualified scientists and engineers, with businesses in Londonemploying the highest proportion (Figure 6.3).

6.4. In terms of developing new sources oftechnological knowledge, there is a verypronounced concentration of Research and

INNOVATION REPORT100

Figure 6.2Proportion of working age population with higher education qualification by region, spring 2001

0 5 10 15 20 25 30 35

Yorkshire and HumbersideWest Midlands

South WestSouth EastNorth WestNorth East

LondonEast Midlands

EastWales

ScotlandNorthern Ireland

UK

% of working age population

Degree or equivalent

Post-GCE A-levelqualification (excludingdegrees and equivalent)

Source: Labour Force Survey, Spring 2001

Figure 6.1Output per head by region, 2001

Source: DTI Regional Competitiveness Indicators

0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000

Yorkshire and HumbersideWest Midlands


LondonEast Midlands

EastWales


UK

Gross Value Added (workplace basis) £s per head

Development (R&D) activity in theSouthern and Eastern areas of England,even when adjustments are made for thepopulations of different regions. Thislargely reflects the decisions of a few largecompanies in R&D intensive industries tolocate their activities there.

6.5. There also appear to be significantregional variations in levels ofentrepreneurship. VAT registrations are thebest available measure of business start-ups by region. Looking at VAT registrationsper head of adult population in 2001,London and the South East saw the highestlevel of entrepreneurship, with levels 61%and 19% (respectively) above the UKaverage. The North East and Wales were

lowest with VAT registrations per head 47% and 31% respectively below the UKaverage.

6.6. Access to finance in terms of privateequity investment per head of populationshows a slightly different picture (Figure6.4). London and the South East show byfar the highest investment per head, withthe West Midlands relatively close behind.The South West and Wales show the leastinvestment per head – less than a tenththat of the South East in 2002. Of the otherregions, East Midlands and North Westshow a significant reduction in investmentin the past three years, although figuresmay be unduly influenced by one or twolarge transactions in certain years, inparticular management buy-outs.



Figure 6.3Scientific skills by region, 1998 - 2000

0 2 4 6 8 10 12 14

Yorkshire and the HumberWest Midlands


LondonEast Midlands

EastWales


UK

Qualified scientists and engineers as % of employment

Source: Community Innovation survey, 1998-2000

Figure 6.4Private equity investment per head of population by region, 2000-2002

0

50

100

150

200

250

East

East

Mid

land

sLo

ndon

Nor

th E

ast

Nor

th W

est

Sout

h Ea

stSo

uth

Wes

tW

est

Mid

land

sYo

rksh

ire &

Humbe

rN

orth

ern

Irela

ndSc

otla

ndW

ales UK

200020012002

Source: British Venture Capital Association (2003)

6.7. While the Government is committed to improving the economic performance ofall regions, it orients its policies towardseconomic convergence, maximisinggrowth in all regions in pursuit of a cleartarget: the growth rates of the regions with the lowest output per head should getcloser to those with the highest3. The Government has pursued an activeregional policy since 1997, believingstrongly that regional needs are besttargeted by regional solutions. It has set up the RDAs, facilitated the establishmentof voluntary regional chambers, anddeveloped the role of the GovernmentOffices. The White Paper “Your Region,Your Choice” set out proposals for directlyelected regional assemblies in thoseregions that wish to have them. One of thekey roles of these assemblies will be toimprove regional economic performance.This regionalism, however, needs to beoutward looking; we need to maintain andenhance our international competitivenessagainst the strongest regions and sub-regions of the world.

6.8. If the less wealthy regions are toimprove their performance compared tothose with a high output per head, they willneed to focus the additional resources theyreceive on improving the drivers ofinnovation such as business R&D, the rateof start-ups, the level of skills and thesupport for high-tech businesses andequity finance, where they lag behind.

6.9. Since the establishment of the RDAswe have introduced several policyinstruments to raise innovationperformance throughout the Englishregions. We have introduced RegionalVenture Capital Funds and given the RDAsgreater flexibilities in how they spend theirown resources by creating a single fundingmechanism. In addition, we have taken

steps to increase the levels of collaborationbetween business and universities byproviding a second round of HigherEducation Fund (HEIF) funding and are inthe process of establishing NewTechnology Institutes in every region.

6.10. Our approach has also beenunderpinned by the devolution ofeconomic policy-making in Wales, Scotlandand Northern Ireland. The DAs havealready produced their own innovation andknowledge transfer strategies, either asseparate statements or as an integral partof their overall economic strategies4.

6.11. The wide regional variations inproductivity, drivers of productivity andcritical success factors for innovation makeit impossible to apply a “one size fits all”policy. Action to improve performance andinnovation has to be tailored to the specificchallenges and opportunities in eachregion. RDAs have made a start in directingtheir efforts towards raising the innovationperformance of their regions, but moreneeds to be done by optimising nationaland regional efforts.

Action to promote innovation at the regional level

6.12. When RDAs were set up, theGovernment made separate fundingstreams available to them to supportinnovation:

� in 2001, the Regional Innovation Fund(RIF) provided the RDAs with their firstopportunity to use the £50m per yearfund in a flexible way to match theirregional priorities5. RIF was first used tofund new incubator space, facilitatenetworks and encourage clusters, as wellas to deepen knowledge of the region’sstrengths and weaknesses. With RIF


3 The joint Treasury/DTI/Office of the Deputy Prime MinisterPublic Service Agreement target is for all regions to growbut with a reduction in regional disparities(http://www.hm-treasury.gov.uk/documents/public_spending_and_services/public_service_agreements_2001_2004/pss_psa_index.cfm)

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 ofclusters and business incubation projects.


6.13. The RDAs devote increasingresources to creating their own initiativesto support innovation in their regions. They have continued to invest in servicestailored to the business profile of theirregion, creating facilities that provide theright environment to attract high potentialentrepreneurs and encourage greatercollaboration between businesses anduniversities. A key role for the RDAs is toensure that national and regional resourcesare effectively integrated. Examples of arange of these activities are given in Box 6.2.

6.14. The introduction of the “single pot”of finance in 2002 gave the RDAssubstantial funding flexibility to respond toregional priorities. The last SpendingReview saw resources for the RDAs risefrom £1.7 billion in 2003/04 to £2 billion in2005/06. Increasingly, the RDAs are nowputting large sums of money intoinnovation and Science, Engineering andTechnology related projects – over £250min 2002/03 – to complement funds availableat national level.

6.15. RDAs also now operationally managea high proportion of European StructuralFunds. The UK’s allocation from the Fundsfor 2000-2006 is over £10 billion. The European Regional Development Fund(ERDF) is the fund that is most widely usedby the regions to support innovationprojects. ERDF has either launched orunderpinned many major interventionswithin regions, providing invaluableadditional funds to complement RDA singlepots. For example, during its first two yearsin existence East Midlands DevelopmentAgency spent £9m on activities relating toinnovation, but levered in an additional£30m in ERDF funding in its Objective 2areas. A total of £23m of ERDF funding inthe North East will contribute towards thecost of developing Centres of Excellenceand supporting individual projects thatdemonstrably ensure that SMEs areequipped with the knowledge to exploit theeconomic benefits of innovation andtechnology transfer. In the North West,


funding, RDAs initiated a total of 91incubator and science/business parkdevelopment projects; and

� the Government made £30m available in 2001 to establish five UniversityInnovation Centres across the UK. These endeavour to develop top class,long-term research partnerships betweenmajor business interests and theuniversities in industry sectors which areof strategic importance to the regions.The RDAs have now adopted thispartnership model using their ownresources (Box 6.1).

Box 6.1Systems Engineering Innovation Centre

Underpinned by £4.5m funding from theEast Midlands Development Agency BAESYSTEMS and Loughborough Universityare collaborating in this exciting ventureto create what is planned to become aunique resource for Systems Engineeringin the UK with global implications formost sectors of industry and universities.The Systems Engineering InnovationCentre (SEIC) at Loughborough will focuson systems engineering aspects thatprovide a framework for the integrationof people, processes, tools andtechnology in order to improve themanagement of risk, productconfiguration and technology insertionfor the development of innovativeproducts. The Centre will attract topresearch scientists and engineers fromuniversities and industry keen to worktogether on the latest innovations inproducts, processes and services. It willoffer access to purpose built research and technology buildings in excess of25,000 m2; research laboratories;synthetic environment laboratories;virtual engineering facilities; officeaccommodation; on-site conference and restaurant facilities and a lecturetheatre and exhibition area.

£31m of ERDF will fund a variety ofprojects and schemes including the ClusterDevelopment Through Business Supportscheme.

Closer integration of national andregional innovation strategies

6.16. Innovation is a key feature of both thenational and the regional agenda forraising productivity.

6.17. If the RDAs are to draw up successfuleconomic strategies incorporatingimprovements in their innovationperformance, it is essential that there is aclear understanding on specific roles andresponsibilities of Central Government andthe RDAs. It is also necessary that theRDAs have the expertise and sources ofadvice to develop and implement theinnovation elements of their regionaleconomic strategies.


� London - London Development Agencyis developing a range of services to helpSmall and Medium-sized Enterprises(SMEs) identify innovation needs andopportunities and facilitate links tosources of innovation and knowledge.Organisations such as the London

Technology Network support the transferand exploitation of knowledge andencourage collaborative innovation andtechnology transfer betweenacademic/research institutions andbusiness. These efforts will be supportedthrough further development of theLondon Innovation website(www.london-innovation.org.uk/).

� South East - South East of EnglandDevelopment Agency has established 17Enterprise Hubs, each supported by atleast one university/research centre,which are together now incubating over520 companies. Incubation space in theregion has doubled and survival ratesimproved. Each hub supports businessesin specific high tech clusters and ensuresthat the entrepreneurs are integrated intobusiness services, venture capital andtechnological support.

� North West - The Textile Incubator atBolton Institute is establishing a core andvirtual science base of excellence

for the development of smart fibresand intelligent textiles anticipating thedevelopments required by the NorthWest technical and performance textilecluster, associated sectors andcustomers during the next 20 years.

� East Midlands - Collaboration betweenNottingham Trent University and theUniversity of Nottingham has resulted inthe creation of Bio City - 12,000m2 ofworld-class laboratories, state-of-the-artequipment and extensive office space inone building, providing facilities forscientists and entrepreneurs working atthe forefront of the commercialisingresearch and development within thehealthcare and biosciences sectors.

� Yorkshire & Humber - Yorkshire Forward,Sheffield University and UK Coal arecooperating, with help from Boeing, todevelop and market a 100-acrebrownfield site in South Yorkshire for anew Advanced Manufacturing Park

(AMP) located in Rotherham. This will bea high quality science park providing thefocus of innovation in metals andmaterials technology in the UK. The AMPhas already attracted world-classtechnology based organisations to co-locate on the Park.

Box 6.2Examples of activity in the regions to support innovation

6.18. In deciding action to be taken at anational level, versus a regional level, twoprincipal criteria should be applied:

� whether the action varies betweenregions and depends on the particularregional circumstances; and

� whether the necessary action is bestdelivered at a national or a regionallevel, i.e. where there is greatest impactand/or critical mass.

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.



� East of England has launched its first twoEnterprise Hubs in 2003 attracting fundsof over £1m with a view to rolling out aprogramme of a further eight hubs by2005. These will act as a co-ordinatedsupport structure for entrepreneurs andnew businesses, exploiting particularlocal strengths in R&D. This willencourage new generations ofentrepreneurs and facilitate thedevelopment of clusters of businesses.The first two hubs are in Stevenagebased on pharmaceuticals and aerospacecompanies, and at the BabrahamInstitute to support early stagebiotechnology start-ups.

� North East - In essence, a two-prongedapproach has been developed in whichsupport for new and indigenousbusinesses is provided through theRegional Cluster DevelopmentProgramme and the identification,exploitation and commercialisation ofR&D (be it public or private) is advancedthrough the Strategy for Success (seeBox 6.3). Five Centres of Excellence havebeen set up to ‘condition’ technologiesarising from the regional research baseto a point where these technologies canbe commercially exploited.

� South West - The “Inspire South West”(ISW) programme will use EuropeanRegional Development Fund InnovationAction’s funding to create greaterdemand for innovation among regionalenterprises. £4m has been set aside tofund four regional technology panels.These will focus on key sectors toencourage: (i) greater take up of‘foresight’ information; (ii) support forand interest in science and technologicalinnovation among communities andyoung people and; (iii) companies to bemore innovative and participate inbusiness networks to promotecompany-to-company learning. ISWaims to create sustained changes inbusiness behaviour so that companiesbecome more future-orientated andmore responsive to change.

� West Midlands - Advantage WestMidlands is providing £33m over 4 years to a £60m collaborative

programme between WarwickManufacturing Group and theautomotive sector, involving thePremium Automotive Group andpotentially over 450 supplier companiesin the region. This major programmeinvolves the take-up of new technologies,improved manufacturing processesand increased craftsmanship.

This process will take account of theconclusions of the Innovation Report andother relevant policy developments, and would be part of the settlement of thenext Spending Round. Once the Targetshave been agreed, each RDA will developtheir Corporate Plan in consultation withDTI, setting out the outcomes they willachieve in support of the delivery of the Targets and addressing the innovationpriorities identified in their RegionalEconomic Strategies.

6.21. Effective cooperation amongst the UKGovernment, DAs and the RDAs requires aconsensus on defining success andassessing 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 currentONS Quinquennial Review of the BusinessEnterprise Research and Development(BERD) survey. We will complete this workby the end of March 2004 so that it willcontribute to development of the nextCommunity Innovation Survey (CIS). TheCIS re-surveys in 2005 and will incorporaterecent developments in the businesssupport infrastructure at both national andregional levels. This action responds to thefindings of the House of Lords Science andTechnology Committee’s Inquiry intoScience and the RDAs whichrecommended that the Government shouldwork with the RDAs to develop simplifiedperformance measures that take betteraccount of the importance of science andtechnology to economic development.

6.22. All regions recognise the importanceof exploiting science and technology, butthere has been limited capacity at theregional level in England to develop andimplement appropriate policies or toestablish a consensus on regional needs.

6.23. Steps are already being taken to helpscience and business connect moreeffectively at the regional level. The NorthWest, North East and more recently theSouth East have already establishedScience and Industry Councils. London andEast of England have equivalent bodies inplace. The West Midlands, East Midlands,Yorkshire and Humberside and South Westare in the final stages of considering whatform 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.



6.25. The experiences and achievements of the North West and North East nowprovide useful guidance to other regionson how to develop their own plans toexploit SET strengths (Box 6.4). Regional organisations also recognise theimportance of working across regionalboundaries and with Central Governmentto strengthen the capabilities of thoseproviding SET expertise and to ensure that any company seeking specificexpertise will be able to find the bestprovider irrespective of its location. The MicroNanoTechnology Networkdescribed in Chapter 3 (Box 3.6) is anexample of how the process of developingboth national and regional resources canbe optimised.

Support for innovative businesses in the regions

6.26 We are strengthening the mechanismsat the regional level in England for bringingtogether innovation, business support andskills development. Regional SkillsPartnerships are providing the forum inwhich the work of all the agenciesinvolved, including the RDAs, the Learningand Skills Council, the Small BusinessService and others, can be more effectivelylinked to regional economic strategies.These new partnerships will also enablepartners to collaborate more fully atregional and local level to meet the needsof the individual business customer.

CLUSTERS AND BUSINESS NETWORKS

6.27. Clusters play a key role in drivingeconomic growth and innovation inlocalities, cities and regions. They create anenvironment where companies can sharebest practice and save costs through jointsourcing. They also create an environmentwhere knowledge transfer is encouraged,and organisations can make best use ofeach other’s skills.


Box 6.3Regional Science and Industry Councils – the concept

The regional Science and IndustryCouncil (SIC) concept was initiallydeveloped for the North West in 2000 toestablish strategic leadership for sciencein the region and ensure its coherent,active promotion. It was subsequentlyadopted by the North East in 2002.

Based on the experiences of the NorthWest and the North East, the followingkey success factors for effective SICshave been identified6.

� they must fully align with the RDA andthe Regional Economic Strategy;

� be business-led (large and small),focusing on those industry sectors or clusters important to the region’seconomy;

� be founded on a clear and realisticunderstanding of regional strengthsand weaknesses;

� be based on a coherent regionalstrategy for the development and useof the science base, linked to nationalpriorities;

� be chaired by a suitably knowledgeableand committed individual who has thestature to command the attention andrespect of all regional stakeholders,public and private;

� be operated in a way that all the keystakeholders share a commitment tothe regional economic agenda and towork together in partnership to furtherthat agenda;

� be able to exert genuine influence,both regionally and nationally; and

� be provided with appropriateimplementation resource and support,ensuring that policy decisions areimplemented effectively.

6 Ref. Arthur D. Little Ltd

6.28. The DTI’s Cluster Mapping Report7,published in February 2001 was the firstattempt to map the UK’s clusters and theRDAs have since built upon it by carrying outtheir own mapping work. This workhighlighted the fact that in many areasimportant clusters already exist, such asChemicals in the North West or Aerospace

in the Midlands. Helping existing clustersto grow where this makes good businesssense is as important as nurturing clustersin new high-tech fields such as Biosciencesor Nanotechnology. In Scotland, ScottishEnterprise has pursued an approach ofsupporting key clusters for some years and current details are given in theirOperating Plan.


� The North West produced the firstregional science strategy - ‘NorthwestScience’ - in October 2002. The strategyseeks to ensure that science andtechnology in the region’s companiesand universities is of the highestcalibre. The North West has committedover £120m over the next three yearsto science projects. The North WestScience Council (NWSC) has played akey role in determining the future ofNWDA Science Policy, in particular bygiving direction to, among others,major cluster strengthening projectssuch as the National BiopharmaceuticalManufacturing facility, GeneticsKnowledge Park, Infolab 21 and theOrganic Materials Innovation Centre. It has also developed a set of measuresbased on scientific excellence,people/skills, finance/investment andtechnology exploitation against whichprogress in the region can be assessedand actions have been agreed toaddress shortfalls. It is heavily involvedin developing the region’s majorscience projects (e.g. 4GLS,Microsystems Packaging, DaresburyScience Park) and will be theresponsible body for the proposedNWDA Science Fund which willsupport major new scienceinfrastructure projects.

� One NorthEast, has established its“Strategy for Success”. This strategy isbased upon the development of

Centres of Excellence in five areas ofpotential world-class excellence, fromthe perspective of both research andthe capacity to exploit this research.Building on the region’s existingstrengths, Centres of Excellence in LifeSciences, Nanotechnology, ProcessIndustries, New and Renewable Energy,Digital Technology and Digital Mediahave been established. The principalfunction of these centres of excellenceis to ‘condition’ technologies arisingfrom the research base to a formwhereby they can be utilised forcommercial purposes. The centres willalso undertake technology transfer andbusiness development. The North EastScience and Industry Council has ledon the design and implementation ofthe Strategy for Success Programme,including the five Centres ofExcellence. It has created a step-change in university-industry linkages,leading to the development of new,shared facilities, e.g. large scale testingfacilities for new and renewable energytechnology, and new collaborativeprojects between industry andacademia e.g. the Newcastle UniversityGrid Computing project. The Council is also leading on the development of a new support infrastructure, forexample by the establishment of twofunds totalling £50m for Proof ofConcept and Early Stage technologyventure funding.

Box 6.4Examples of activities bringing together business and the science, engineering and technology base at a regional level.

7 http://www.dti.gov.uk/clusters/map/

6.29. Government intervention cannot forceclusters to grow. Nevertheless,Government and RDAs can remove theobstacles to their development andsuccess. These barriers vary in theirsignificance from place to place. Forexample, some locations may need toprovide the housing, transport and otherinfrastructure required to allow thebusiness base to grow. In others the issuesinclude the supply of incubators andScience Parks; shortage of skills; thedifficulty for firms to access help in ruralareas or the need to link up with aresearch-intensive university.

6.30. One of the most important lessons wehave learnt from all the work that we havedone both nationally and regionally onclusters is the importance of networks.Networking activities in the regions arevital for firms to learn about the benefits ofinnovation, identify opportunities forcollaboration and stimulate them to takeaction. In many cases, specific fora nurturepriority sectors and clusters at the regionallevel, providing the channel forcommunicating critical information on howsupport can be obtained. RDAs havealready planned significant futureinvestment to promote businessnetworking and are striving to integrate theresources available to them into theseactivities (Box 6.5).

6.31. The recent report by ProfessorMichael Porter8 for the DTI stressed theneed to continue to develop both theanalytical 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 forinvesting in disadvantaged localitiesthrough its Regional Selective Assistance(RSA) scheme. Historically its goal was toexpand or sustain existing employmentopportunities, but since 2000 we haveplaced greater focus on higher qualityprojects that have a wider economicbenefit – determined by wage levels, theamount of R&D, and training indicators.For example, we have supported the Pfizermajor facilities in Sandwich in Kent, theFiltronic plant in Newton Aycliffe in CountyDurham and Tripos Receptor Research atBude 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 RSAin Scotland, the scheme has been re-focused for today’s economy, and thisincludes more emphasis on quality projectsand high-growth firms.

BUILDING INNOVATION AND DESIGN INTO LOCALLY DELIVERED BUSINESS ADVICE

6.34. We have stressed a number of timesin this report the advantages that can begained by “thinking innovation” in publicpolicy and encouraging business to thinkso as well. In Chapter 2, we also identifiedthe benefits to be obtained from buildingdesign principles into product and servicedevelopment.

6.35. To exploit the full benefits of ourapproach, we must ensure that businessesreceive imaginative and practical guidanceon incorporating innovation and designinto their business planning and operations.



8 http://www.dti.gov.uk/economics/paper3-porter-ketels.pdf


� Yorkshire & Humberside - the region’sDigital Cluster is a highly diverseindustry comprising the electronic andelectrical component sectors, computersoftware and hardware producers,creative design and media sectors. The cluster employs 80,000 people withan annual turnover of £7.7 billion.Yorkshire Forward’s support for thecluster is aimed at improving itscompetitiveness through greaterinnovation and technology transfer andthe development of networks.

� East of England - Cambridge has aworld-class cluster of inkjet printing

companies, which are specialised inproviding industrial inkjet printingsolutions. Cambridge DisplayTechnology and Plastic Logic are twocompanies based in Cambridge thatuse inkjet printing to deposit polymer-based electronics. Biodot andBiorobotics are using inkjet printing forprecision dispensing of biologicalmaterials in microarrays. An inkjetconsortium has been set up byCambridge University Institute forManufacturing to enhance thecompetitiveness of the existing inkjetcluster. There is also a large pool ofrelevant knowledge in the local area,including specialist consultancies.

� South East - The Isle of Wight Marine

Cluster was one of the first clusters tobe established and it now has upwardsof 30 members. Most of them are smallboatyards involved in the production ofcomponents and equipment for largermanufacturers. Their prime concernswere shortages of skilled staff and the

seasonal nature of their work, whichmeant long periods when they werenot actively operating. They are nowactively involved in developing theircapabilities in Lean Manufacturing,selling their services to largemanufacturers and setting up a schemeto create a skilled labour pool aroundthe Solent. Most encouraging of allthey are now working together as avirtual shipyard to compete for, andproduce, complete boats.

� West Midlands - The building industry

is currently facing significantchallenges with ever changing andmore stringent environmentalregulation requirements and skillsshortages. The centre will develop andlaunch a Construction InformationServices Package; provide a searchabledatabase; provide a technical alertservice and provide a helpline serviceproviding access to technical experts atthe Centre; help companies to improvetheir competitiveness by increasingtheir awareness of innovativedevelopments around the world andprovide specialist support for theirefforts to innovate in the design andmanufacture of products and systems.

� The Creative Entrepreneurs Clubdeveloped through the LighthouseCentre for Architecture and Design inGlasgow provides a network hub withinternational links for creative industrybusinesses across Scotland. Activitiesinclude expert presentations, businessto business dialogue and a filteringservice for potential investors.

Box 6.5Examples of fostering clusters and collaboration



6.36. The UK’s Manufacturing AdvisoryService (MAS) is a good example of anexpert advisory programme delivered at aregional level. MAS operate to varyingdegrees within Scotland, Wales andNorthern Ireland. It is designed to addressthe practical operational needs ofmanufacturers, particularly SMEs. By providing advice and assistance fromleaders in their field – on hand and easilyavailable – MAS enables manufacturers tosucceed and improve their productivity.RDAs and the Welsh AssemblyGovernment fund the Regional Centres forManufacturing Excellence (RCME) but theirexpenditure will be supplemented by a £14m contribution from DTI over threeyears. This budget also provides for DTI’sdirect funding of the National Network ofCentres of Expertise. In Scotland, similaradvice is provided through the EnterpriseNetworks. The Scottish Executive ishowever currently reviewing its technicaland specialist support to manufacturers inlight of the success of the MASprogramme. Progress of the MAS to date is summarised in Box 6.6.

Box 6.6Progress 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 regionaltraining and other events; and

� 200+ ongoing in-depth consultancyprojects;

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 servicewitnessed 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 ofabout 30%; and

� benefit to each firm in value added of about £85,000 per year.

The DTI Manufacturing Advisory Servicewebsite is specifically designed to helpUK manufacturers, large and small, toidentify sources of manufacturing relatedsupport and expertise. There are manyexcellent case studies presented whichdemonstrate the very real improvementsgained by customers of the service.

9 http://www.dti.gov.uk/ manufacturing/mas/index.htm

exploitation of global links (Chapter 7). All of these elements add up to a powerfuloverall system for improving innovationperformance at local, regional and nationallevels, emphasising the need for closeworking relationships between nationaland regional stakeholders.


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 productswithin the DTI’s new Business Supportportfolio, the Design Council will take thelead in enhancing the design awareness of MAS, Business Link and similarintermediaries in their dealings withindividual companies. The Design Councilwill help improve the design awareness skillsand proactivity of such advisers by leadingon the development for intermediaries of:

� the design elements of a BusinessDiagnostic Toolkit for use by advisors,including those in Business Linksresponsible for providing businesssupport assistance to individualcompanies;

� the training of MAS, Business Link andsimilar advisors to significantly enhancetheir awareness of the role of productdevelopment and design in businesssuccess; and

� a continuing information resource foradvisers which will include the provisionand updating of regional registers ofdesign providers to whom companiescan be referred by intermediaries withconfidence.

6.39. Virtually all elements of theinnovation agenda set out in this report to develop high performance, innovativecompanies have a regional dimension.These are not repeated here, but areacknowledged in other chapters such asthe skills and knowledge transferrequirements (Chapter 2), the role ofuniversities, the Small Business Service(SBS) and Business Link (Chapter 2),technology transfer and commercialexploitation (Chapter 3), access to nationalinnovation assets (Chapter 4) and


Chapter 7Global links

Globalisation is changing and widening thebasis of competition. UK companies arehaving to adapt to this by producing goodsand services that are superior to thoseprovided by their competitors, who are notstanding still. Successful companies have aglobal perspective and are prepared to useit not just for international export purposes,but for understanding and accessingtechnologies from other countries that canadd to their competitiveness.

95% of the world’s science and technologyis based outside the UK. Successful firmswill tap into the global knowledge base,often networks with foreign businesses and research organisations, to gaincompetitive advantage. The GlobalWatchservice communicates technologicaladvances to thousands of businesses/researchers across the country, runstechnology missions and internationalsecondments. This action is complementedby a network of specialist science andtechnology staff in British embassiesacross 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 populardestination in the world for inward investorsand number one in Europe. In addition tobringing revenue and prosperity to thecountry, inward investment is also animportant means of improving knowledgetransfer and increasing value-addedoperations into the UK. UK Trade &

Investment enable potential inwardinvestors to identify technologicallyadvanced UK firms with which they maywish 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 internationalbusiness tend also to be more innovativeand competitive or engaged in high levelsof Research and Development (R&D).Exporters have a better chance of survivalthan non-exporters, and they tend topreserve jobs during economic downturns.

For UK firms who want to expand intooverseas markets, UK Trade & Investmentprovides support for companies across therange of international business activitiesincluding overseas market contacts forexporters, overseas investment, standards,joint venture partnerships, internationalsourcing of science and technology,participation in international collaborativeprogrammes.

UK Trade & Investment is currentlyevaluating all its products and services tore-deploy resources where it adds the mostvalue.

� 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.


Summary

Global Links

7.1. The global economy is changing. Trade barriers are eroding, new marketsare opening up, bringing opportunities toUK firms as well as threats from potentialcompetitors. Competitive pressures areincreasing. Reductions in transport andcommunication costs mean that customersface a wider range of potential suppliers.Firms also have a greater choice in whereto invest. Many multi-national companiesnow conduct research in several baseslocated across the globe. UK firms arehaving to adapt to this environment byproducing products that are superior tothose provided by their international

competitors – who are not standing still.Successful companies are formulating theirstrategies in the context of the world market,world science and technology and worldcompetition. The Government can help by:

� promoting international collaboration inscience and technology;

� encouraging inward investment of highvalue added activities; and

� assisting internationally competitivecompanies.

7.2. Governments around the world areengaging in policies to promote innovation.(see examples in Box 7.1)



Canada:

The Canadian Federal Governmentpublished an innovation and skills agendaand strategy in 2002. This sets outinitiatives designed to achieve targets toimprove Canada’s economic growth andsocial development by 2010. Targetsinclude raising Canada’s rate of R&D anddeveloping ten internationally recognisedtechnology and community-based clusters.Actions include more support for universityresearch and its commercial exploitation atnational and local levels, the developmentof specific technologies using public-private partnerships, and a regulatoryenvironment more conducive for businessinnovation.

Netherlands:

The Dutch Prime Minister recentlylaunched an “Innovation Platform”, adebate about how to strengthen innovationas the future driver of economic growth.The Platform aims to produce its firstconcrete action programme within sixmonths. In addition, the Dutch Cabinet hassubmitted a paper to Parliament and theplatform, “In Action for Innovation”.Specific policy suggestions include greater

tax incentives for private sector R&D inSmall and Medium-sized Enterprises(SMEs), increasing the flow of foreignknowledge workers and entrepreneurs,and stimulation of more collaborativeresearch and development.

Germany:

The Action Plan on innovation in SMEshas been developed to combat thedecline – from a high base – of the SMEsshare of business R&D. It combinescurrent and new initiatives; an example isthe refocusing of R&D grants available inthe eastern Länder towards growing firms.

South Korea:

In 2001 the Science and TechnologyFramework Law was enacted and broughtabout several important changes inscience, technology and innovation policyin Korea. The law places emphasis on theco-ordination of national science andtechnology and R&D policies andinvestments, regardless of sponsoringministry. The Government has alsoinitiated new programmes to promotetechnology transfer, diffusion andcommercialisation of new technologies.

Box 7.1Recent initiatives overseas to move innovation up the policy agenda

7.3. World trade has grown enormously inrecent 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 andeconomic activity increasingly crossesborders. The UN World Investment Report(2003) estimated that the world stock of(inward) Foreign Direct Investment (FDI)was equivalent to 22% of Gross Domesticproduct (GDP) in 2002, compared to under7% in 1980. Over that period, the UK stockof (inward) FDI increased from $63 billionto $639 billion.

7.4. A global outlook is a characteristic ofsuccessful firms. All can benefit from smallbusinesses producing specialisedequipment and services to large bulksuppliers. For innovative companies,trading internationally can be veryimportant. Markets and leading edgecustomers for a particular product orservice may be overseas. Commercialdealings with them provide invaluablemarket intelligence and sources oftechnical knowledge. Those hightechnology SMEs producing novelproducts that take a risk andinternationalise early may reap the rewardslater of becoming a global market leader.Establishing an international presence,however, poses difficult commercialchallenges for SMEs, and assistance forsmaller businesses can help bring them tothis global marketplace.

7.5. The UK does 5% of the world’s science,which means that 95% of the world’sscience and technology is based outsidethe UK. Successful firms will seizeopportunities to build internationalnetworks to exploit knowledge, involvingboth foreign businesses and researchorganisations. Overseas firms see the UKas an attractive location for investment.Inward investors can bring newtechnologies or practices to the UK whichhave knock-on benefits to the local, andultimately regional economy.

7.6. The reduction of trade barriers withinthe EU Single Market has also acted as astimulus to growth, allowing innovative UKfirms to sell their goods or services into alarger market. Membership of theEuropean Monetary Union could also bringthe UK significant economic benefits. The HM Treasury assessment of the fiveeconomic tests concluded that, weresustainable and durable convergence to beachieved between the UK and euro area,UK national income could rise between 5and 9% over a 30-year period1. Sustainableand durable convergence between the UKand EU economies is essential to realisethe benefits from increased trade,investment, competition and productivity.

7.7. The UKs role as a leading member ofEuropean Union brings opportunities toparticipate in, and benefit from, the widerange of business and research supportavailable. As well as the Framework R&Dprogramme, which is worth some £350mper year to the UK, the Structural Funds,which are offered at regional level, bringsome £100m to the task of stimulatinginnovation on a substantially larger scalethan domestic schemes. Firms and otherorganisations need to be alert to thepotential of these EU offerings. In Scotland,the Scottish Proposal Assistance Fund(SPAF) helps SMEs to access the expertiseneeded to write high-quality proposals forFP6 funding, whilst the recently announcedProposal Assistance for Co-ordination ofEuropean Research fund (PACER) will helpuniversities with the up-front costs ofbidding to become a coordinator ofFramework integrated projects.

7.8. Government helps UK-basedbusinesses to access the global knowledgebase by reducing the costs and risks ofaccess and exploiting economies of scopeand scale.


1 HM Treasury “UK Membership of the Single Currency, anAssessment of the Five Economic Tests (2003)”,http://assessment.treasury.gov.uk/


International Collaboration inScience and Technology

7.9. For UK-based firms which wish toacquire knowledge of technologicaldevelopments, advanced skills andscientific advances in other countries,develop their businesses by acquiring theGlobalWatch service (formerly known asthe International Technology Service (ITS))offers a range of practical help. Thisincludes a website2 which carries out over80,000 technology related searches eachmonth and the GlobalWatch magazine with a circulation of 23,000.

7.10. The GlobalWatch service also runsabout 30 technology focussed missionsand 50 international secondments eachyear (see boxes 7.2 and 7.3 for examples of secondments and missions we havesupported), as well as facilitatedtechnology-partnering with severalthousand firms through the InternationalTechnology Promoters (ITPs). The ITPs arebusiness people with experience ofdeveloping technology partnershipsbetween UK business and overseasorganisations. They support technologypartnering of various styles, often acting asthe precursors to more formal licensing orother commercial deal making. TheGlobalWatch service also supports bilateralscience and technology activities withRussia, Japan, South Korea, and Chinathrough high technology industry forumsand manages the BRITECH bilateralsupport programme for R&D with Israel.

7.11. The Foreign and CommonwealthOffice (FCO) has established a new networkof science and technology attachés in keycountries around the world. Workingclosely with the DTI, UK Trade &Investment, British Council and others, thenetwork helps inform policy making onscience and innovation, helps companiesaccess overseas innovation andtechnology, facilitates high-tech trade andinvestment and uses science andtechnology as a vehicle to maximise theUK’s impact abroad.


2 www.globalwatchonline.com

Box 7.2Secondments offer new skills on joining

TME (Total Maintenance Engineering) –an SME based in Gateshead – sent MartinGoodfellow on a three monthsecondment to France with financialsupport from the GlobalWatch service.This came about when TME realised thatFrench apprentice-trained engineers hada greater breadth of knowledge and werethe preferred option in their sector forwork in the UK.

After his secondment to Les Compagnonsdu Devoir, Martin Goodfellow had gainedspecific knowledge and best practice ofthe training regimes that could be applied in the UK. This resulted in an increase instaffing and in apprenticeship staff andprofits by a factor of five. Since thesecondment, TME has worked with thePrince’s Trust to secure 20 places everyyear for firms in the UK to sendapprentices to France for two years oftheir apprenticeship training, acquiringadvanced skills and techniquesappropriate to precision welding andgaining knowledge about managementtechniques for developing aninternational business.

Later, Emmanuel Constans from LesCompagnons du Devoir spent 6 monthsat TME’s premises. The inwardsecondment brought French skills andexpertise in welding fine steel, aluminiumand titanium to the UK. The direct resultof this secondment was the recruitmentof 12 apprentices in this work. Thisencouraged a multi-national foodmanufacturer to stay in Gosforth,Newcastle. Previously the company hadbeen considering shedding jobs andmoving from its base due to the lack oflocally available welding skills.


7.12. There are also a number of bilaterallinks which enable researchers and businesspeople to share knowledge between the UKand overseas. One such is the UK-TexasBioscience Initiative, which aims topromote collaborative R&D in biosciencesand related topics between researchers inthe UK and the region around Houston,Texas. In Scotland, the Edinburgh-StanfordLink was established as a programme ofresearch and training linking the HumanCommunication Research Centre (HCRC) atthe University of Edinburgh with the Centrefor the Study of Language and Information(CSL) at Stanford. The focus is on speechand language technology, an area in whichthe participating centres both haveinternationally recognised reputations forexcellence. The Link is fully funded byScottish Enterprise (SE), with £5.3m forcommercially focussed, early stageresearch over five years and a further £700,000 for commercialisation activitiesrelating to the research.

7.13. These services have undergoneconsiderable change and expansion overthe past few years. For example, we havealready taken some steps towardsintegrating international knowledgetransfer with the UK domestic programme.We now use a common team of externalconsultants, to arrange the domesticKnowledge Transfer Partnership (formerlyTeaching Company scheme (TCS)) projectsand the outward secondments that areoffered 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.

Box 7.3Technology mission: Getting to grips with Alzheimer’s

Over 600,000 people in the UK sufferfrom Alzheimer’s or Parkinson’s disease,and a further 100,000 a year suffer astroke. Some of the latest therapeuticapproaches are being developed in theUS, so the GlobalWatch service, workingwith the British Embassy science team inWashington and Boston, arranged forrepresentatives of 7 UK bioscience firmsand a senior academic from King’sCollege London to visit leading researchinstitutions and businesses in Marylandand Massachusetts.

Whilst respecting the Intellectual Propertyof both parties, the visit enabled UKresearchers to gain an insight andtransfer back to the UK knowledge of thelatest thinking of how UK teams arefocusing on the development of therapiesand treatments. Also there wereopportunities to learn about how thedrugs companies are working incollaboration with the universities andnational institutes in the field.

7.15. Our recent review of the organisationof cross-Government support in this arearecommended that service provision shouldbe aligned to meet customer needs ratherthan reflect organisational convenience.More specifically, UK and internationalknowledge transfer programmes shouldfeed off each other and be promoted anddelivered through the same channels andinternational activities should be targetedand delivered against a clear strategy and business plan. We will work to realign

the delivery of our services to implement

these recommendations.


7.16. The Technology Strategy3 will also be used to realign our overseas activitieswith the overall direction of strategicinnovation and at the same time offer newperspectives in other fields. We will alignour overseas technical missionsprogramme to the priorities of theTechnology Strategy as well as to anyopportunities emerging from the activitiesof the various networks or projectscontributing to the strategy. We expect toachieve these objectives within the presentenvelope of running 30-40 high qualitytechnical missions per year.

7.17. Maximising European opportunities:Nowadays, UK-based businesses routinelyenter into a wide range of joint venturesand collaborative R&D programmes withfirms in many other countries to developand exploit new products and services.With our partner nations in Europe there isan opportunity to create a research tradingbloc on a par with that in the US.

7.18. The European Union is nowencouraging the nations of Europe to co-ordinate their research efforts through theconcept of the European Research Area(ERA). The UK welcomes the ERA concept.We believe that it can help to relieve someof the rigidities that have slowed downEuropean industrial performance, byencouraging greater mobility for researchers,integrated and efficient use of resources aswell as a more coherent approach toresearch planning and policy making.

7.19. Since 1984, the EU has sought topromote industrial innovation through theFramework series of collaborative R&Dprogrammes. Framework enables UKbusinesses and research organisations toenter project-based partnerships withorganisations throughout the EU andbeyond. Through Framework, Europeanresearchers can collaborate on pre-competitive as well as basic R&D to attaina degree of critical mass that can offsetsome of the natural disadvantages of


operating in a highly fragmentedmarketplace. The current programme,Framework 6, allocates some D17.5 billion(£12 billion) to research over the period2002-2006. Framework gives priority to thefollowing fields: life sciences, genomicsand biotechnology for health; informationsociety technologies; nanotechnologiesand nanosciences; knowledge-basedmultifunctional materials and newproduction processes and devices;aeronautics and space; food quality andsafety; sustainable development, globalchange and ecosystems; and citizens andgovernance in a knowledge-based society.(see example in Box 7.4).

Box 7.4 Retail is data-mining through Framework

A team led by Maurice Mulvenna, fromthe University of Ulster, participated in an EU-supported collaborative researchproject which helped prove the viabilityof data mining in on-line retailapplications. The success of theirinvolvement led to the establishment of a spin-off company – MINEit Software –which was selected as the SoftwareIndustry Federation’s New Company ofthe Year in 2001. One of MINEit’sproducts won the European IST GrandPrize in the same year. The research wasused to enhance commercial software,which is now used by more than 500organisations worldwide.

7.20. The UK has always been an activeparticipant in European research andcontributes considerably to itsdevelopment. UK participants receiveabout D510m (£350m) per year accordingto official data, a proportion that compareswell with the UK’s share of European GDP.In 2001, participation from universities wasthe highest in Europe; participation bybusinesses was second only to Germany.

3 Please refer to chapter 3

7.21. Framework represents a majoropportunity for UK business to benefitfrom the available support and createinternational alliances. It is therefore acause for concern that UK businessinvestment in Framework seems to bedeclining. The reasons for this are:

� the complexity of the application processincurs significant costs;

� delays inherent to bidding withFramework inhibit success in someleading edge technologies;

� Framework tends to support researchsuitable to large public research centresand larger firms; and

� the lack of a clear and distinctive nationalresearch structure works against UKindustrial involvement.

7.22. Recognising the vital importance ofthe Framework Programmes to the UKeconomy the Government has longprovided a wide range of expert help andsupport to UK organisations seekingfunding from this programme through itsnetwork of National Contact Points. We continue to develop stronger networksfor promoting Framework to theorganisations that are most suited to thistype of engagement (e.g. those involved inUK technology programmes, regionalclusters and networks created through theTechnology Strategy).

We have:

� made it easier for UK organisations tobecome aware of the opportunitiesoffered by the current (sixth) EUFramework Programme by enablingthem to access the wide range ofNational Contact Point experts by settingup a single, centralised information andpromotion service4; and

� rationalised the system of NationalContact Points for specific Frameworkthematic fields, to reduce the number ofseparate contacts and provide a moreholistic 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 futureFramework programmes and the processesinvolved complement UK priorities, asdeveloped through the TechnologyStrategy) and focus on those areas whereEuropean collaboration delivers greatestadded value to the UK. As the EU grows, itwill become more difficult to predict theoutcome of Framework bid calls but wewill aim to ensure that UK-led bids involvehigh quality work and partners. We believethis to be the surest way of maintaining thesuccess in Framework that we haveenjoyed up to now.


4 www.fp6uk.ost.gov.uk



7.24 In addition, the EU will publish anEnvironmental Technology Action Plan.This is intended to stimulate innovation inenvironmental technologies by identifyingbarriers. We keenly support this processand are encouraging the EuropeanCommission to carry out a number ofmeasures including:

� ensuring that the FrameworkProgrammes are designed andadministered in a way that stimulatesinnovation in environmentaltechnologies; and

� exploring ways of establishing a fasttrack route for environmental technologyoutputs from the FrameworkProgrammes to be taken through to theLIFE Environment DemonstrationProgramme, to encourage marketpenetration for innovative technologies.

7.24. The UK is also a leading member ofthe Eureka initiative. Eureka is a pan-European network to stimulate civilcollaborative R&D with clear marketrelevance. Eureka projects have generatedprototypes of advanced products,processes and services. Well knownexamples include digital radio, the“Galileo” airline booking system, theanimation software for “Walking withDinosaurs” and beer can “widgets”. Eurekacomplements Framework but covers awider geographical area with 34 members,including the European Commission. Anypublic support for projects comes fromindividual governments.

7.25. The UK budget for Eureka has fallencompared to that of other leadingcountries. Since 1994 we have channelledfunds to helping SMEs. Other Eurekapartners contribute significantly more.Firms that obtain DTI domestic R&Dsupport have been encouraged to considerforming or joining collaborative Eurekaprojects, but inevitably such firms will be avery small proportion of the population.The new Technology Strategy should offeropportunities for bids into Eureka to beconsidered 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 UKis the second most popular place in theworld to do business and number one inEurope5. We are focussing on sustainingthis position, which is underpinned by astable economy, flexible labour marketsand relatively low tax rates.

7.28. For overseas firms, UK Trade &Investment, the Regional DevelopmentAgencies (RDAs) and the DAs providetailored help for inward investment into theUK. Foreign-owned companies undertakeone-third of UK business enterprise R&Dand some long-standing UK subsidiaries offoreign multinationals have worldwideleadership in particular product lines.Foreign-owned companies thus make asubstantial contribution to the UK’s overallinnovation effort and facilitate the spreadof technological and business best practice.They also provide UK-based businesseswith access to leading-edge materials,components and services as well assophisticated customers on their owndoorstep.

5 UNCTAD (United Nations Conference on Trade andDevelopment) World Investment report 2003.

is the quality of the companies we want to encourage into the UK. Science andtechnology, creativity and innovation andadding value represent the future newinvestment in this country.

7.32. We recognise that this is an ongoingprocess. Supported by Governmentpolicies that have invested more in R&D,science and technology and education, UK Trade & Investment will spend £6.3mon lead generation and £4.5m onpromoting the UK to potential inwardinvestors 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 GlobalPartnerships Service has had a numberof successes leading to the transfer ofnovel technologies to UK partners.Subject to a review in September 2004we plan to roll out the service to theentire UK Trade & Investment network;

� The AGES (Attracting Global

Entrepreneurs) Since its launch inJanuary 2003 the initiative has scored anumber of wins. We will evaluate thesuccess of this pilot initiative when itcomes to an end in March 2004; and


6 DTI White Paper “Opportunity for all in a World ofChange: Enterprise, Skills and Innovation, Feb 2001.”http://www.dti.gov.uk/opportunityforall/

Box 7.5Knowledge transfer through cross-border clusters

A number of countries have developedcross-border clusters for mutual benefit, the rationale being to stimulate greatercross-fertilisation of innovation and thereby contribute to enhanced ForeignDirect Investment. Examples are;Denmark/Sweden (resund); theSwitzerland-France (near Basel) clusterstimulating innovation in biotechnology;and the Sweden/Finland/Baltic’s cluster.

7.29. UK Trade & Investment’s GlobalPartnerships Service strengthens business-to-business partnerships. This serviceenables potential inward investors toidentify technologically advanced UK firmswith which they may wish to build strategiccollaboration. The AGES (Attracting GlobalEntrepreneurs Scheme) initiative targetsexpatriates and foreign nationals who haveinnovative business proposals or havemanagement experience as entrepreneursto relocate to establish start-ups or joinemerging start-ups.

7.30. Like every other developed countrywe understand that we cannot compete onthe same terms as the low wage, newlyemerging economies such as India orChina, and we have to look at increasingthe value added to promote the UK as agreat place to do business. Our strengthsinclude being the world’s fourth largesteconomy, with a world-class Science,Engineering and Technology (SET) baseand an international language.

7.31. Over the last five years, UK Trade &Investment has successfully refocused itsresources on encouraging high-techcompanies into the UK and, more recently,since 2002, has taken responsibility for the development of the White Paper6

commitment to attract globalentrepreneurs. In today’s climate the key


� UK Trade & Investment research and

technology website and signposting

We will develop UK Trade & Investment’sresearch and technology website so thatit effectively signposts investors torelevant science and technologydevelopment in the UK; and establish anetwork of experts who can similarlysignpost investors.

7.34. The recent House of Lords SelectCommittee on Science and TechnologyReport on Science and the RDAs7

highlighted the importance of exploitingscience, technology and engineering foreconomic gain, and in particular the needfor the true integration of national andregional perspectives.

7.35. In terms of regional action oninternational 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

� 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).


Developing internationallycompetitive companies

7.36. Companies that engage ininternational business tend also to be moreinnovative and competitive or engaged inhigh levels of R&D8. Research alsoindicates that for the service sectoroutward investment is key to establishing a presence in foreign markets. Exportershave a better chance of survival than non-exporters, and they tend to preservejobs during economic downturns. UK Trade & Investment is dedicated tohelping companies become internationallycompetitive and preparing them for aglobal market place.

7.37. For UK firms who want to expand intooverseas markets, UK Trade & Investmentprovides support for companies across therange of international business activitiesincluding overseas market contacts forexporters, overseas investment, standards,joint venture partnerships, internationalsourcing of science and technology andparticipation in international collaborativeprogrammes. Other countries provide suchservices in different ways (see example inbox 7.6).

7 House of Lords Select Committee on Science &Technology 5th Report, Session 2002-03: Science & theRDAs: SETting the regional Agendahttp://www.publications.parliament.uk/pa/ld200203/ldselect/ldsctech/140/14003.htm

8 University of Nottingham – Exporting and BusinessPerformance 2001.


7.38. UK Trade & Investmentcommissioned a comprehensive review ofthe needs of their existing and potentialcustomers. From over 6,000 observations,the Review concluded that their customersprimarily wanted sector-specificinformation relating to target markets andcontacts there and in the UK. The reportalso showed that UK Trade & investmentneeded to strengthen its support for high-growth priority sectors, particularlythose in technology-driven industries.

7.39. UK Trade & Investment is currentlyevaluating all its products and services toredeploy resources where it adds the mostvalue. 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, whichprovides potential new exporters with acomprehensive range of help and advice tomake them internationally competitive,shows that user businesses have improvedtheir innovative capability. Some 47% ofcustomers had improved their use ofinternational networks, with 35% havingboosted their capability for technologicalinnovation and 28% investing in improvingtheir software capability.

7.41. While exporting is important, acompany may consider entering anoverseas market simply to have greatercontact with new ideas and technology.Also many entrepreneurs set up hightechnology companies with global marketsin mind because they sell to highlyspecialised customers, few of which existin any one country. Such start-ups havehighly specific developmental needs as aresult.

Box 7.6 Finpro (www.finpro.fi)

Finpro is an association owned byFinnish companies which aim toguarantee that Finnish companies,especially SMEs, have access to highquality, comprehensive internationalisationservices in different parts of the world. It operates in Finland and in 51 FinlandTrade Centres around the world.

Finpro supports Finnish companies byhelping them find effective operationalmodels and solutions forinternationalisation. Services range fromtarget market analyses and creation ofmarket entry strategies for companies tofull-scale planning and execution of aninternationalisation project for a company.

2002 saw a number of changes anddevelopments for Finpro. In response tothe ever-changing situation in globalmarkets, three new Trade Centres wereopened in countries with growingbusiness potential for Finnish companies;Chile (Santiago), Russia (St Petersburg)and Norway (Hammerfest). To strengthenthe local service supply in Finland and, in co-operation with other operators inthe Finnish innovation environment, anew e-service portal, Business Finland,www.yritys-suomi.fi was founded. The first concrete actions were takentowards the creation of a “One StopInternationalisation Service”, a database,pulling together information from anumber of service providers.

7.42. To support this trend UK Trade &Investment has refocused its organisationto create new teams to provide support tocompanies in 10 high value sectors. Theseinclude: biotechnology and pharmaceuticals;chemicals; communications; creative andmedia; education and training; electronicsand IT hardware; healthcare and medical;and software and computer services. We also encourage innovation in othersectors where a value-added product cantransform an industry, such as smarttextiles. The sector teams are designed to focus our support on high value addedareas and to help innovative companies to grow their business.

7.43. UK Trade & Investment has employedsector specialists in the US, for examplewith specialist ICT and biotech expertise,(see Box 7.7) to provide additional supportfor UK companies in these highlyinnovative sectors to win businessoverseas. We are investigating extendingthis to other key markets.



Box 7.7 Working in a Global Marketplace

UK Trade & Investment have developed asuccessful initiative to link US venturecapital with the dynamic UKbiotechnology sector. It was recognisedthat UK firms faced difficulties findingcapital investment at the post start-upstage. UK Trade and Investment’sbiotechnology specialist in San Franciscoput together two visits by US venturecapitalists interested in funding highquality research and innovation in UKbiotechnology. We have just completedthe second Bio TransAtlantic event, andhave put 25 US venture capitalists andmajor bio/pharma companies directly intouch with over 40 selected UK biotechfirms. We have involved british ventureCapitalists to act as intermediaries fortheir US counterparts and large USPharmaceutical companies. UK Trade &Investment also organised trainingworkshops to help the small UK biotechcompanies make effective presentationsto demanding US venture capitalists.


Action plan


Innovation Report Proposals

DTI and DfES are jointly leading the Skills Alliance to implement theSkills Strategy. RDAs will develop Regional Skills Partnerships withtheir key partners. DTI will co-sponsor the Skills for Businessnetwork. DTI will also develop curriculum material with BusinessSchools to aid the teaching of skills for the management of hightech, fast growth businesses, and will support DfES work to developcapacity in Centres of Vocational Excellence (CoVEs).

DTI will promote the benefits of information and consultation (I&C), taking forward the framework agreement so as to encourageincreased and improved workplace I&C ahead of the requiredimplementation date of March 2005. To spread the innovationagenda through Britain's workplaces, DTI will establish a jointCBI/TUC Innovation Taskforce.

The SBS will ensure that Business Link supports innovation in SMEsthrough the provision of relevant advisory services, development ofa flexible Leadership & Management Programme (with DfES) forsmall business leaders, strengthened links between skills andbusiness support programmes, and working with other partners toensure technological and design brokerage is available locally,regionally and nationally.

The SBS will work with RDAs, Business Link and others to improvebusiness 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 strengthenthe existing network of women’s enterprise agencies.

The Design Council and DTI will work with companies in up to 10industry sectors to demonstrate how innovation can be enhancedthrough the improved use of design. The Design Council and DTI willalso work in partnership with UK universities to establish designlearning for science, engineering and business managementstudents, and develop design demonstration activity withinTechnology Transfer Offices.

The Research Councils will make plans for increasing the rate of knowledge transfer and interaction with business.

Action Areas

Ensuring we havethe skills to support innovation.

Maximisingpotential in theworkplace.

Supportinginnovationin SMEs.

Supporting womenentrepreneurs.

Incorporatingdesign to add value.

Increasing the pull-through of new ideas from the SET base.


Action plan

Paragraph

2.10, 2.12,2.13, 2.45

2.47, 2.48

2.2, 2.19,2.22, 2.23,2.24, 2.25

2.52, 2.53,2.54

2.33, 2.34,2.35, 2.36,2.38, 2.39

3.16

Lead and participating organisations

DTI, DfES, DWP, RDAs,business schools

DTI, CBI, TUC

SBS, DTI, DfES, RDAs,Design Council

SBS, DTI, RDAs

Design Council, DTI, HEIs, SBS, RDAs

OST, Research Councils, RCUK, DTI

Timescale

Skills Strategy ongoing to March2006; Regional Skills Partnershipsfrom April 2004; Skills for BusinessNetwork by Summer 2004;curriculum material by March 2005;CoVEs from April 2004.

Increase/improve I&C ahead ofMarch 2005 deadline; establishTaskforce in Spring 2004.

Advisory services from April 2004;Management & LeadershipProgramme Pathfinders in Englandfrom January 2004.

Draw up Action Plans with RDAsand Business Link by summer 2004;develop toolkit by Spring 2004.

April 2004 - March 2006.

From Spring 2004.


Action Areas

Increasing the pull-through of new ideas from the SET base.

Capitalising on our measurementexpertise.

Encouraginginformedmanagement and protection of intellectualproperty.

Driving theinnovation agenda acrossGovernment.

UsingGovernment’spurchasing powerto supportinnovation.


DTI will develop a Technology Strategy with business, the SET base,other Government Departments, RDAs, and other stakeholders toidentify key technologies with future growth potential. DTI willprovide some of the funding and share some of the risks of pullingthrough technologies in these key areas into the market. TheTechnology Strategy will also provide a framework for Governmentpolicy decisions, European programmes and RDA support forscience and innovation.

Objectives for our National Measurement System will be developedto include a greater focus on innovation. The NMS will increasinglyfocus research programmes on measurements for emergingtechnologies, 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 productdevelopment projects, and 20 exchange secondments betweenNational Measurement Institutes and industry.

The Patent Office will develop a major awareness-raisingprogramme building on its Business Advice Open Days and a new national strategy for dealing with IP crime.

Recognising the innovation challenge facing the UK, the PrimeMinister has asked the Secretary of State for Trade and Industry to chair a Ministerial team to drive forward the innovation agendaacross Government.

We will identify how Government can procure innovative solutionsto both improve the quality of public services and supportinnovation in businesses. The Office of Government Commerce willproduce best practice guidance on capturing creativity fromgovernment suppliers, and DTI will work with DoH to trial innovativeprocurement in two areas of the NHS: in the construction of newhospitals; and in the adoption of telemedicine technologies. DTI will reinvigorate the SBRI programme to encourage theprocurement of R&D from SMEs by Government Departments andResearch Councils.


Action plan

Paragraph

3.23, 3.36

4.6, 4.7,4.8, 4.9,4.11,4.12

4.20, 4.23,4.27

5.7

5.13, 5.19,5.21, 5.22,5.28


DTI, Research Councils, RDAs, otherGovernment Departments, business

DTI, NPL, NEL, LGC, business, RDAs, DAs

Patent Office, Customs & Excise, SBS, DAs, RDAs, and others

DTI, Cabinet Office, HM Treasury, Other Government Departments

DTI, OGC, DoH, NHS Estates, SBS, business

Timescale

From Spring 2004.

From April 2004.

April 2004 - March 2005.

November 2003 - November 2004.

Guidance by March 2004; projectswith DoH from January 2004; SBRIfrom April 2004.



DTI will produce a guide for policy-makers to help identify theimpact of proposed regulations on innovation. DTI will lead a projectteam to identify how environmental regulatory frameworks(including voluntary measures) can be designed to encourage, ratherthan stifle, innovation in three areas of regulation and severalindustrial sectors. We will also continue to push for delivery of thebetter regulation agenda in Europe.

DTI will work in closer partnership with the RDAs to integratenational and regional policy development and implementationplanning processes. This will include setting up Science and IndustryCouncils or equivalent regional bodies. In the context of developingnew Public Service Agreement targets, we will agree a set ofnational and regional innovation indicators.

DTI will define the criteria for the new DTI product supportinginvestment in the assisted areas so that the main objective is the creation of sustainable, high-value investment and jobs ratherthan simply maxmising the number of jobs.

We will integrate innovation into regional business support deliverymechanisms, building upon the Manufacturing Advisory Servicemodel to include access to innovation and design advice where thisis not explicitly provided already.

We will take a number of measures to strengthen collaborationbetween the scientific and technological expertise in UK-basedcompanies and expertise overseas. This will include increasing thenumber of International Technology Promoters by a third anddoubling the number of outward industrial secondments, realigningthe delivery of UK Trade Investment trade services to better meetcustomer needs, and increasing participation of UK businesses inEuropean and pan-European programmes such as EU Frameworkand Eureka. UK Trade and Investment will take responsibility for theinternational innovation agenda by ensuring that Governmentcoordinates its action in this area.

Action Areas

Stimulatinginnovation throughthe regulatoryframework.

Aligning nationaland regionalinnovationstrategies.

Encouragingregional growththroughinvestment.

Supportinginnovation in the regions.

Encouraginginnovation throughinternationalcollaboration.


Action plan

Paragraph

5.33, 5.37,5.38, 5.41

6.20, 6.19,6.21, 6.24,

6.33

6.36

7.33, 7.39,7.14, 7.26


DTI, DEFRA, DfT, Cabinet Office, EA, HSE

DTI, RDAs, HMT, DAs, ONS

DTI, RDAs

DTI, RDAs, SBS, DAs

DTI and UKTI, with OST, RDAs, DAs

Timescale

Best practice guide by Autumn2004; environmental regulatoryframework project by Summer 2004.

New PSA by February 2005; outlineset of innovation indicators byMarch 2004.

By April 2004.

From April 2004.

From April 2004.


Annex


LINK Programme

List of LINK LINK programmes open programmes to new project proposals

Biosciences/Medical � Applied Genomics� Bioremediation� Genetic and Environmental Interactions in Health� Health Technology Devices Programme� Integrated Approaches to Healthy Ageing� Sustainable Technologies Initiative

Electronics/ � E-Science GRID TechnologiesCommunications/IT � 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 LINK programmes open programmes 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 � Advanced Food Manufacturing� Earth Observation� Food Quality and Safety� Horticulture� Sustainable Arable Programme� Sustainable Livestock Production� Sustainable Technologies Initiative

Materials/Chemicals � Manufacturing Molecules� Basic Technologies for Industrial Applications� Sustainable Technologies Initiative


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.

Faraday Description Direct web link to the home pagePartnership of the Faraday Partnership

ADVANCE Automotive and www.faraday-advance.net aerospace materials.

COMIT Communications and mobile www.comit.uk.cominformation technology.

CRYSTAL Green technology for the www.crystalfaraday.org chemical and allied industries.

EPPIC Electronics and photonics www.eppic-faraday.com packaging and interconnection.

FIRST Innovative remediation science www.firstfaraday.com and technology.

Food Developing the underpinning www.pera.com/foodfaraday/index.aspProcessing materials, equipment and

process knowledge applicable to food processing.

Genesis Farm animal genetics www.genesis-faraday.organd genomics.

High Power RF Industrial applications of high www.powerfaraday.org.uk power radio frequency engineering.

Imaging Digital imaging. www.imagingfp.org.uk

IMPACT Innovative materials www.impactfp.org development and product formulation by the application of colloid technology.

Industrial Industrial mathematics and www.smithinst.ac.uk Mathematics system engineering.and System Engineering

INREB Integration of new and www.inreb.org renewable energy in buildings.


Annex

Faraday Description Direct web link to the home pagePartnership of the Faraday Partnership

Insight High throughput technologies www.insightfaraday.org for new product and process development.

Intersect Intelligent sensors for control www.intersect.org.uktechnologies.

Medical Devices Providing a UK focus to the www.medical-devices-faraday.com area of medical devices.

Mini-waste Novel technologies and www.mini-waste.com processes for the minimisation of industrial waste.

Packaging Practical innovation for fast- www.faradaypackaging.commoving consumer goods packaging, its manufacture and supply.

Pinpoint Global navigation satellite www.pinpoint-faraday.org.uksystems (GNSS) applications.

Plastics Enabling research to meet the www.faraday-plastics.com critical technological challenges of the plastics sector.

PRIME Smart products (products with www.primefaraday.org.uk inter-dependent mechanical and electronic parts).

Pro-Bio Bio-catalytic processes for www.pro-bio-faraday.com manufacturing.

PowdermatriX Rapid manufacturing through www.powdermatrix.orgpowder processes.

Smart Optics Access to new optics www.smartoptics.orgtechnologies.

Technitex A focus for academic excellence, www.technitex.hw.ac.uk industrial innovation and best practice in technical textiles.


Glossary of terms

ACASAdvisory, Conciliation and Arbitration Service

AGESAttracting Global Entrepreneurs

AMPAdvanced Manufacturing Park

BATBest Available Techniques

BBABritish Bankers’ Association

BBSRCBiotechnology and Biological Sciences Research Council

BERDBusiness Enterprise Research and Development

BLBusiness Link

BLWBusiness Link Wessex

BRTFBetter Regulation Task Force

BSGBroadband Stakeholder Group

BSIBritish Standards Institution

BVCABritish Venture Capital Association

CAACivil Aviation Authority

CapexCapital Expenditure

CBIConfederation of British Industry

CFConstant Frequency

CISCommunity Innovation Survey

CMICambridge/MIT Institute

CO2

Carbon Dioxide

CODChemical Oxygen demand

CoVEsCentres of Vocational Excellence

CPDContinuous Professional Development

CSELCentre for Scientific Enterprise Limited

CSLCentre for the study of Language andInformation

DADevolved Administrations

DARPDefence and Aerospace Research Partnership

DCMSDepartment of Culture Media and Sports

DDADefence Diversification Agency

DEFRADepartment For Environment, Food and RuralAffairs

DfESDepartment for Education and Skills

DfTDepartment for Transport

DGRCThe Director General of the Research Councils

DoHDepartment of Health

DTCDefence Technology Centre

DTIDepartment of Trade and Industry

DWPDepartment for Works and Pension

EAEnvironment Agency

ECFEnterprise Capital Funds

EEFEngineering Employers Federation

EMDAEast Midlands Development Agency

EPSRCEngineering and Physical Sciences Research Council

ERAEuropean Research Area

ERDFEuropean Regional Development Fund

EUEuropean Union

FCOForeign and Commonwealth Office

FDAFactors’ and Discounters’ Association

FDIForeign Direct Investment


FEFurther Education

GDPGross Domestic Product

GEMGlobal Entrepreneurship Monitor

HCRCHuman Communication Research Centre

HEBIHigher Education Business Interaction

HEIFHigher Education Innovation Fund

HEIsHigher Education Institutions

HMTHer Majesty’s Treasury

HSEHealth and Safety Executive

IC CAVEInternational Centre of Computer Games andVirtual Entertainment

I&CInformation and communication

ICASSInnovators and Counselling and AdvisoryService Scotland

ICTInformation and Communications Technologies

IDEIndustrial Design and Engineering

IGTInnovation and Growth Team

IPIntellectual Property

IPACIntellectual Property Advisory Committee

IPPCIntegrated Pollution Prevention and Control

IPRIntellectual Property Rights

ISWInspire South West

JIFJoint Infrastructure Fund

LECLocal Enterprise Companies

LEDLight Emitting Diode

LGCThe former Laboratory of the Government Chemist

LSCLearning and Skills Council

MASManufacturing Advisory Service

MBAMasters of Business Administration

MDFMedium Density Fibreboard

MNTMicrosystems and Nanotechnology Network

MoDMinistry of Defence

MPCMonetary Policy Committee

MRCMedical Research Council

MS™Microsoft

MSSL Mullard Space Science Laboratory

NBANNational Business Angel Network

NELNational Engineering Laboratory

NGOsNon-governmental organisations

NHSNational Health Service

NIACNational Intellectual Asset Centre

NISTNational Institute of Standards and Technology

NMIsNational Measurements Institutes

NMSNational Measurement System

NPLNational Physical Laboratory

NSSFNational Standardisation Strategic Framework

NVQNational Vocational Qualification

NWDANorth West Development Agency

NWMLNational Weights & Measures Laboratory

NWSCNorth West Science Council

ODPMOffice of the Deputy Prime Minister

Glossary of terms


OECDOrganisation for Economic Co-operation andDevelopment

OFTOffice of Fair Trading

OGCOffice of Government Commerce

ONSOffice for National Statistics

OSTOffice of Science and Technology

PACERProposal Assistance for Coordination ofEuropean Research

PhDDoctor of Philosophy

PSAPublic Service Agreement

PSREPublic Sector Research Establishment

R&DResearch and Development

RCARoyal College of Art

RCMERegional Centres for Manufacturing Excellence

RCUKResearch Council UK

RDAsRegional Development Agencies

RIFRegional Innovation Fund

RSARegional Selective Assistance

RTOsResearch and Technology Organisations

S&TScience and Technology

SBICSmall Business Investment Company

SBRISmall Business Research Initiative

SBSSmall Business Service

SEScottish Enterprise

SEICSystems Engineering Innovation Centre

SETScience, Engineering and Technology

SET BaseScience Engineering and Technology Base

SICScience and Industry

SIEScottish Institute for Enterprise

SMESmall and Medium Enterprise

SMFStandard Mammogram Form

SPAFScottish Proposals Assistance Fund

SRIFScience Research Investment Fund

SSDASector Skills Development Agency

STEMScience, Technology, Engineering andMathematics

TCSTeaching Company Scheme

TGWUTransport & General Workers Union

TMETotal Maintenance Engineering

TTOsTechnology Transfer Offices

TUCTrades Union Congress

UCLUniversity College London

UfIUniversity for Industry

UKTIUK Trade and Investment

UNUnited Nations

USUnited States

UKUnited Kingdom

USAUnited States of America

UTCUniversity Technology Centre

VATValue Added Tax

VFVariable Frequency

VMSVariable Message Signs


Steering Committee Members

Nick BaldwinEnergy Advisory Group Board

Robert CrawfordScottish Enterprise

John CridlandConfederation of British Industry

Anthony DunnettSouth East of England Development Agency

Mark GibsonBusiness Group, DTI

Anne Glover Amadeus Capital Partners Ltd.

David HughesInnovation Group, DTI

John Kingman HM Treasury

Ron LovelandWelsh Assembly

Roger Lyons AMICUS

Geoffrey Norris No. 10 Policy Directorate

Vicky PryceChief Economic Adviser, DTI

Janice ShinerDepartment for Education and Skills

John TaylorOST, DTI

Joe TiddScience and Technology Policy Research,University of Sussex

Caroline WhitfieldInnovation Group Advisory Board


The DTI drives our ambition of‘prosperity for all’ by working to create the best environment forbusiness success in the UK. Wehelp people and companies becomemore productive by promotingenterprise, innovation and creativity.

We champion UK business at homeand abroad. We invest heavily inworld-class science and technology.We protect the rights of workingpeople and consumers. And westand up for fair and open markets in the UK, Europe and the world.

Innovation_Cover 12/12/03 3:22 PM Page 2

INNOVATION REPORT

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

INN

OV

AT

ION

RE

PO

RT

Com

peting in the global economy: the innovation challenge

Innovation_Cover 12/12/03 3:22 PM Page 1

global economy: competing in the/http:/ · 1. competing in the global economy dramatic moments in...

Documents