Monday, January 30, 2012


Last week, the American industrial giant GE published the results of its “Global Innovation Barometer”, a survey of 2,800 senior business executives in 22 countries.

It is a fascinating study, in that it gives an insight into how the business community views innovation and, more importantly, its impact on the competitiveness of individual companies.

Not surprisingly, the USA is viewed as having the best reputation globally for innovation, followed by Germany, Japan, China and South Korea.

The UK is ranked seventh, behind India, with 39 per cent of British respondents stating that government had not been successful in supporting research and innovation. What should be of interest to policymakers is that the study shows the belief of businesses in innovation as the main driver of competitiveness, prosperity and job creation, although the current uncertainty within global markets is having a major effect on their ability to innovate.

In fact, nine out of ten respondents saw increased challenges at the current time in accessing venture capital, private investment and government funding. Despite this, the study emphasises the links between innovation and competitiveness, showing that countries where innovation policies are perceived as more competitive actually delivered higher growth i.e. markets where business is most satisfied with the perceived political and social environment for innovation delivered higher GDP growth than those markets where business feels anxious or threatened by policies.

Indeed, many businesses seem to be influenced by the government’s approach to innovation, with companies indicating that their internal investments in innovation, from research and development budgets to the pursuit of new products or business models, are at risk when there is a perception of a negative shift in government policies that support innovation.

For the Welsh Government, there is a vital lesson in communicating its innovation policies effectively and coherently to the business community, something that has been sadly missing during the last few years.

In terms of recognising new trends in innovation that could benefit Wales in the long term, the study suggests that companies are moving beyond the traditional closed model of innovation and are instead enthusiastically embracing the open innovation model, where collaboration between several partners, including smaller organizations and individuals, is the norm. However, there is a so-called partnership paradox in this trend in that whilst 86 per cent of the businesses surveyed believe that partnerships are important to innovation, only a fifth believe that finding partners is an immediate priority on a day to day basis. Again, there could be a role for the Welsh government here in providing a matchmaking service between different organisations wishing to develop their innovation, given the payback on wealth and prosperity to the economy.

In terms of business competitiveness, it was heartening to note that 77 per cent of executives acknowledge that small firms have the ability to be as innovative as large firms and whilst R and D is seen to be important, nearly three quarters of businesses agreed that innovation will not be driven by scientific research but by people’s creativity.

A more in-depth study, conducted by the Milken Institute, examined key innovation indicators in the UK. Their findings make interesting reading:

  • University-Industry Collaboration (Leading): University-industry collaboration is strong in the United Kingdom. In the GE Innovation Survey,  78 percent of respondents agreed that it is quite easy for firms to partner with universities. The Higher Education Funding Council for England (HEFCE) recently launched the Economic Challenge Investment Fund, which will enable universities and colleges to provide specialized training, development, and professional support to individuals and businesses. The government has also supported innovation vouchers that allow businesses to purchase engagement with knowledge-based institutions. 
  • Venture Capital Deals (Leading): The venture capital market in the United Kingdom is one of the strongest in the world, equaling 0.2 percent of GDP. In nominal amounts, the United Kingdom is second only to the United States, and as a percent of GDP, the United Kingdom ranks third, behind Finland and Sweden. Some continue to worry, however, that the government has not fully addressed financing for early-stage, high-growth businesses. Respondents in the GE Innovation Survey were mixed, with 45 percent stating that private investors are supportive of companies that need funding, 41 percent disagreeing, and 14 percent uncertain.
  • Gross Expenditures on R&D [GERD] (Leading): At 1.8 percent of GDP, the U.K.'s R&D spending was below the OECD average in 2008.  Industry financed 45 percent of GERD, while government funded 31 percent. Business expenditures on R&D (BERD) equaled 1.1 percent of GDP. Boosting the intensity of innovation activity in enterprises is one of the nation's top policy challenges as cited by the INNO-Policy TrendChart report.
  • High-Technology Exports (Leading): The United Kingdom performs comparatively well in high-technology exports, placing in the top of the first quartile globally. The top innovative sectors remain pharmaceuticals, defense, and aerospace. Going forward, the principal areas of growth appear to be in the green economy, the creative economy, and in advanced health care involving biotechnology. 
  • Utility Patents (Leading): In 2008, the United Kingdom produced 27 triadic patents per 1 million residents, which was below the OECD average, but still in the first quartile of countries surveyed. While not typically highlighted, the manufacturing industry plays a large part in the U.K.’s economy. Between 1997 and 2009, the country's manufacturing productivity increased by 50 percent, and in 2009, manufacturing represented 13 percent of GDP. In the GE Innovation Survey, 60 percent of respondents agreed that the protection of copyrights and patents was effective.
  • STEM Education (Above Average): In global rankings for science, technology, engineering, and math education, the U.K. places in the bottom half of the second quartile, ahead of Russia, the United States, and Germany, but still well behind countries like Singapore, Finland, Switzerland, and Canada. In 2008, the United Kingdom was slightly above average with eight researchers per 1,000 workers; 23 percent of all new degrees were in science and engineering. Respondents in the GE Innovation Survey were relatively negative; 46 percent believed the government had not been successful in improving education.
  • Business Environment (Leading):A renowned international marketplace, the United Kingdom maintains one of the best environments for starting and growing a business. The financial markets are well developed and venture capital is abundant. In 2008, nearly 18 percent of gross expenditures on R&D were financed from abroad, greater than three times the OECD average. The governance system is also markedly strong, with significant stakeholder involvement and strong appraisal processes in effect. More recently, the government introduced the Enterprise Finance Guarantee (EFG), based on the previous Small Firms Loan Guarantee, which extends credit to companies with viable business plans that would normally be able to obtain funding in more stable financial circumstances

Therefore, if the UK is to increase its relative position in terms of innovation and catch up with nations such as the USA, government, academia and industry must all their part.

For policymakers, there needs to be a focus on developing an efficient tax system that provides incentives to R and D and investment. It must also ensure that a strong institutional framework is in place to protect intellectual property. However, the danger, in trying to deal with addressing the large public deficits is that education and R and D investments will not be fully supported.

For universities, there must be greater interaction with businesses, especially in terms of having a more open approach to innovation and commercialising knowledge more effectively rather than hoarding intellectual property in laboratories. Creativity must also be valued in education as much as scientific knowledge, as that is the key driver behind innovation.

Finally, businesses must continue to play an important role through encouraging an environment that addresses co-operation with smaller firms and the cross-fertilisation of ideas across different parts of the organisation.

But the clear message to politicians, vice chancellors and chief executives from the Global Innovation Barometer is that innovation is critical to not only restarting the economy, but in ensuring competitive advantage as the economy grows. Given this, it is critical that all of them must not only invest in innovation, but must put it at the forefront of their policies for the future.