Monday, November 26, 2012


This week, the Office for National Statistics released the latest UK business R&D expenditure data a few days ago and this gives us the opportunity to benchmark the UK against the Global Innovation 1000 report discussed in an earlier article.

The good news is that, as with the overall global data, spending on innovation is increasing within the UK.

According to these statistics, spending on industrial R&D by British companies had actually increased by eight per cent in 2011 to £17.4 billion, which is a higher growth rate than for Europe as a whole.

As demonstrated in the Global Innovation 1000 report, the sectors that had grown the most were computer and information service activities, motor vehicles and parts and the pharmaceuticals industry. Collectively, these three industries had increased their R&D expenditure in the UK by £750m in the last twelve months.

And whilst large firms remain the big spenders, the proportion of expenditure by SMEs has actually grown from 14 per cent in 2006 to 23 per cent in 2011, showing the growing impact of entrepreneurial firms on innovation.

For Wales, the data provided a mixed picture.

Whilst business spending on R&D has increased by 77 per cent since 2000 (as compared to 51 per cent for the UK), growth has been relatively flat over the last few years (see graph below). Indeed, Welsh companies provide less than 1.5 per cent of the total amount of business R&D undertake within the UK, well below what would be expected proportionally. This demonstrates how dependent the Welsh economy has become on its university sector as the main source of research and how important it is to get the mechanisms right to get new products and processes from the laboratory into the marketplace.

More relevantly, the Welsh Government’s aim of having business R&D as one per cent of the economy remains a distant target, with the data suggesting that firms would have to spend an additional £200m per annum to reach this target.

Of course, politicians can only do so much to support innovation within the business community and firms themselves need to develop new ways of exploiting research findings and transferring them into the marketplace. And that is where some of the more detailed findings of the Global Innovation 1000 study may prove useful.

Through detailed interviews with major innovators, one of the most important (and perhaps more obvious) findings from the survey is that there seems to be no long term correlation between the amount of money a company spends on its innovation efforts and its overall financial performance.

What is more important is how businesses use that money and the quality of their talent, processes, and decision-making. Therefore whilst Welsh businesses spend comparatively less than firms in other regions on R&D, this does not necessarily mean that they are not using those funds productively.
Another key finding is that over half of those innovative companies interviewed said that they actually weren’t very good at it. In fact, only a quarter of the firms believed that they generated ideas effectively and, at the same times, converted those ideas into new product development projects.

But what is important about these firms is that they have a consistent set of principles and processes to turn ideas into potential commercial projects and, crucially, any company in any industry to get the most out of the money they spend on innovation can use these tools.

For example, the most common method for coming up with new ideas was “direct observations of customers”. In addition, the main internal mechanism that companies used to support commercialisation was the employment of “innovation champions” within organisations, namely employees who are assigned to coordinate the capture, development, and promotion of new ideas.

I wonder how many Welsh organisations have such individuals employed to boost innovation internally?

One of the more interesting findings is that major companies use open innovation in idea generation sparingly. This is unexpected given that this has been a major source of discussion as the new paradigm for accessing new ideas. However, the fact that a small but growing number of firms are seeking out new ideas from a variety of sources outside their conventional domains, including innovation contests and social networking, does offer opportunities for Welsh companies, especially if the whole concept of open innovation can be adopted by senior managers within these firms.

Therefore, whilst R&D expenditure by private companies in Wales has slowed down in recent years, there are certainly lessons that can be learnt from other businesses to make the most of the money spent on innovation. In particular, there needs to be a greater emphasis on the development of innovation skills that, ironically, no Welsh university currently offers to the business community.

There are certainly plenty of opportunities for Welsh firms to make the most of innovation as a competitive tool and hopefully, through its new innovation policy, the Welsh Government will be able to provide the support necessary to access these opportunities wherever possible.