How Can We Improve the UK’s Innovation Performance and Increase Productivity?

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According to a recent study, the UK has one of the highest numbers of high productivity firms, however, it still remains one of the lowest performing countries in terms of innovation and productivity – but why is this? This year’s annual State of Small Business Conference, hosted by the Enterprise Research Centre (ERC), aimed to address this question, leading the conversation on increasing innovation and productivity in the UK. Tracey Moore, Group Development Manager and Executive Director at PNE Group, attended on behalf of the Group. In this guest blog, she summarises the event which focused on the need to increase innovation and productivity in UK businesses and highlights the key strategies for UK businesses going forward.

On September 7th, I had the opportunity to attend the 2017 annual State of Small Businesses Conference, an event which brought together academics, businesses, policy makers and entrepreneurs to reflect on the impact of the UK’s current innovation policies and consider ways to increase productivity and support growth in UK businesses.

Delivered through three main sessions, the conference highlighted a key challenge facing UK businesses in 2017:  the need to increase UK innovation and productivity. This is not a new challenge. Indeed, UK productivity has been stagnating since the 2008/2009 recession and the Business Industrial Strategy Green Paper has highlighted that innovation is at the heart of this problem. According to the ONS, in 2015, UK productivity was 26.7% lower than Germany, 22.7% lower than France and 22.2% lower than the US.  The reason for this is not entirely clear, though economists suggest that reduced investment in innovative firms since the banking crisis, political uncertainty, an aversity to risk in business and low rates of innovation and discovery could all be playing a role.  Strategies to increase productivity include the provision of finance for R&D and innovation which is delivered through UK research councils (including Innovate UK) –  the conference provided the opportunity to consider the effectiveness and impact of the investment so far.

Stephen Roper, Director of the ERC, presented findings from his study which looked at the effectiveness of UK Innovation Policy and compared 15,000 firms in receipt of grants with a closely matched control group.  The results are positive and show that firms in receipt of support grew their turnover 5.8-6 times faster than the control group, and 22.5-28% faster in the six years that followed. This resulted in a net effect of a 6.2% productivity boost after six years.  This is no doubt a positive result, but there is still a long way to go if UK productivity is to increase in line with other developed countries.

Two types of innovation were highlighted – New to the Market innovation (NTM), where new products/services are introduced to the market ahead of competitors, and New to the Firm innovation (NTF), when products/services used by others are introduced to the business for the first time.  Stephen’s presentation showed that the UK is lagging significantly behind the majority of Europe in terms of NTM innovation, but we move higher up the rankings in NTF innovation. Government policy focuses on increasing NTM innovation, which is seen to have a higher level of risk in terms of reputation and position in the market, but can also have the biggest impact and provide the best return if done successfully.

Kevin Baughan, Deputy Chief Executive of Innovate UK talked about the programme’s £2.2bn of investment since 2007, which has supported approximately 2,400 innovation projects each year, with 60% of the funding so far going to SMEs. £11.4 million of this was invested in the North East in 2015/16.  Innovate UK incentivises innovation, something Kevin compared to the approach taken in racecourse development: Innovate UK prepare the grounds, enabling the most innovative projects to naturally rise to the top.  Kevin also referred to a ‘UK R&D challenge’. At present, the majority of R&D is happening in the aerospace, automotive and pharmaceutical sectors and in large multi-nationals – the challenge therefore, is to see that future funding focuses on skills alliances, collaborations and innovation centres to develop knowledge and research which will support more NTM innovation across a wider range of sectors.

Dr Emma Sceats, Chief Executive of CN Bio, spoke about her journey and the ease of sourcing finance in the US versus the UK. Her business is currently developing human ‘organ-on-chip’ technologies that enable the formation of mini models of human organs in the lab as an alternative to animal testing. Though based in the UK, Dr Sceats found that the support and funding available to her company to innovate and grow was more easily available in the US, though she is currently in the process of applying to Innovate UK. Her experience of support so far is that US innovation support was much easier and faster to navigate and she presented some interesting food for thought for the UK policy makers in the audience.

Invest in Skills

Tim Dafforn, Chief Entrepreneurial Adviser for the Department for Business, Energy and Industrial Strategy, cited a lack of leadership and management skills in entrepreneurs as a significant barrier which is holding back growth. In order for businesses to realise their business growth capability, he said, training providers need to respond to the learning styles of entrepreneurs and provide a range of different development pathways to improve leadership skills. By focusing on ‘business growth capability’ rather than leadership and management when working with businesses, the impact on the business is clearer and engagement is therefore made easier.

Opportunities for Innovation

According to Caroline Paunov, Senior Economist with the OECD, key innovation opportunities for SMEs lie in the digital economy, with the rise of the internet of things, big data analytics, blockchain and artificial intelligence. The digital economy enables lower R&D costs which can provide new opportunities for entry, lower the costs of dissemination and reduce entry barriers, all of which will open up opportunities for SMEs to deliver scale without mass.

In line with the Industrial Strategy, Tom Thackray, Director for Innovation at the CBI, outlined the four main drivers of regional productivity as; the educational attainment of young people at 16 years, access to transport links that widen access to labour, better management practices and a higher proportion of firms that export and innovate. Tom concludes that the productivity puzzle requires a national focus, better targeting and clearer channels of business support in order to bring about change. He highlighted the challenge that many firms face of labour hoarding versus capital investment when companies are reluctant to adopt new technologies which will improve productivity levels but result in a loss of jobs.

As part of the commercialisation pipeline session, Nola Hewitt-Dundas from the ERC spoke about the opportunities available for firms to collaborate more closely with universities to promote innovation and encouraged use of the Konfer online matching facility which supports universities and businesses to identify research partners and opportunities for collaboration. Following this, Pippa Hall, Chief Economist from the Intellectual Property Office (IPO), introduced the services available through the IPO which include information, education and dispute resolution services which support businesses to fully realise the potential of their Intellectual Property.

Where Do We Go from Here?

It is clear that the UK still has a long way to go if we are to increase productivity and innovation in line with other developed countries such as France, Germany, Italy and the US.

The conference gave an insightful view into the different way in which this can be achieved, and presented a number of potential solutions and original, thought-provoking pieces of research. In my opinion, we may have quite a way to go, but the future for innovation in the UK is looking more positive with a range of programmes now available to promote innovation such as Innovate UK, the James Dyson Award and Shell LiveWIRE, to name a few. The announcement last week of a £30m research and development facility focusing on cutting-edge whole energy systems technology opening in the North East will hopefully be the first of many more such facilities which will give the UK an avenue to demonstrate the wealth of talent and exerptise that can be found here.

Businesses, both large and small, have a key role to play alongside the UK government in answering the call for innovation and the sustainable development agenda presents new challenges to businesses which will inevitably require innovative solutions if we are to support the achievement of the 17 sustainable development goals by 2030.

About the Author

Untitled design (15)Tracey Moore is Group Development Manager and Executive Director at PNE Group. Responsible for the design and implementation of national social investment programmes for clients, Tracey is currently developing a sustainability programme to encourage more young entrepreneurs in the North East to launch responsible businesses. In addition to promoting sustainable and responsible businesses, Tracey is also interested in strategies for increasing productivity and cultivating innovation in the work environment.




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