An Innovation Nation
Innovation, a bit like enterprise, is one of those things that trips very easily off a politician’s tongue. We all want it, we all support it, we all think it matters, but I can go one further. In my department it is, quite literally, our middle name.
When BIS was created we put innovation on the front of the tin very deliberately. Because we believe that innovation runs across the whole remit of the new department. It is at the heart of the knowledge economy and our response to globalization. It is at the heart of the recovery. It is key to our future success.
I want to do two things today. First, to say something about why innovation matters so much and why we have to see it as more than a niche policy issue. It’s a systemic challenge. That’s why it’s in the name of the department.
Second I want to make this more concrete by setting out what we are doing to turn good research and science into innovative development. To turn innovative ideas into innovative companies. To turn employees into innovators. And to turn the government’s procurement budget into a force for innovation.
Why innovation matters
Why does any of this matter? It matters because innovation is a whole approach to technology and practice. It’s the assumption that we could be doing this better, differently, whatever ‘this’ might be. ‘This’ can be a piece of technology. But it can also be a way of doing things. That’s an important point, because in an economy in which retail and business and financial services play such a huge part, some of the most important innovations are in processes: marketing, design, communications and administration.
I talk a lot about an investment-led recovery. Well, innovation is at the heart of that. Not just because it drives commercial invention, but more fundamentally. Because innovation is what pushes up productivity, and every pound we save by doing something better is a pound we can invest somewhere else. Innovation is at the heart of growth.
I talk a lot about the green jobs revolution. Well, innovation is at the heart of that too. In part because we’re in a race to get green technologies off the drawing board. In part because low carbon is an innovation in our whole mode of life. It will change almost everything – simply because it will change how we generate and use energy.
Britain has a strong track record here. We are the original innovation nation. We enter the twenty first century with a set of strong national resources built up carefully by the government over the last decade. A world class science base – second only to the US. A skilled workforce; an open approach to FDI; and tax credits for R&D. We also have an open competition policy that is a driver of innovation. This has helped us attract and retain some of the world’s biggest corporate investors in R&D.
The innovation infrastructure
The challenge is to see all these things not as isolated policies, but as an innovation infrastructure. That infrastructure stretches from competition policy through education and skills policy, through the intellectual property system, through risk and growth finance to the way in which we bring researchers and companies together to generate new ideas.
Globalization will put tougher demands than ever before on our innovation infrastructure. Because the knowledge that drives innovation can now spread around the world in an instant. Because skill levels and investments in science and technology are rising in the emerging economies. Britain and its companies still invest less in R&D than many EU countries – even if this is not a perfect proxy for innovation. And of course the banking crisis and the recession create their own problems for innovation – especially how we fund it.
Think of it this way: the average lifespan of an S&P 500 company now is just 11 years, which means that complacency is essentially fatal. My argument today is that complacency includes thinking that all British companies need to succeed in this innovation race is a free market and no favour. They need that but also a lot more. I want to say something quickly about four critical parts of this challenge.
Science into innovation
The first is in the recognition that we need to do more in Britain to translate our record investments in our world leading science base into commercial innovations. This was one of the key planks of the New Industry New Jobs strategy that we launched in April.
UK universities are increasingly partnering with business to do this, and our job is to reinforce that trend. I also want research councils and the Regional Development Agencies to help deliver this. And a core task of the Advanced Manufacturing Research Centres will be to horizon-scan for new technologies and act as a proactive channel between the research base, industry and potential financial backers to further development in advanced manufacturing.
And of course the TSB was created to do all of these things and more across the economy. Over the last two years it has proved its worth. Which is why we backed it with an additional £50 million in this year’s budget. This year our £750million strategic investment fund has invested in – among other things - low carbon aircraft engine technology; fuel cells, and industrial biotech by investing in the TSB. The core funding we provide for TSB is enabling it to announce investments worth over £80m today.
I’m also happy to announce today a joint £37million investment between my Department’s Strategic Investment Fund, the TSB, the East of England Development Agency, the Wellcome Trust and Glaxo Smith Kline to create a unique drug development bio-incubator in Stevenage.
It will provide access to specialist equipment and services and knowledge sharing on drug development. In its first phase it will be home to around 25 companies with plans to expand the available space five-fold.
It is looking to attract inward investments, spinouts and start ups. It will provide access to specialist equipment and services and knowledge sharing on drug development. It is a strong new platform for the work of our Office for Life Sciences. Most important it is a huge investment in our biosciences future in this country.
Ideas into companies
Our second challenge is to recognize and get to grips with the unique challenge of financing innovation. All investment is risk, but investing in innovation carries its own kinds of risks. UK financial markets have long under-delivered on finance for start-ups and expanding firms. It’s partly the steep capital costs, partly the long lead times on proof of concept and product development, partly the high costs of due diligence for relatively small investments. It’s striking that private equity over the last decade has raised more and more money, and invested less and less of it in small firm growth and innovation.
We would expect a level of risk-aversion in the early stages of recovery. But if that risk-aversion stalls the growth of a new generation of innovative British firms, then the recovery itself is at risk. It’s time to start treating this not as a market failure problem that needs tweaking, but as a structural problem that needs serious public policy solutions.
As a country we do have to start putting more money where our mouth is on innovation. And that means using more public funds as a catalyst to back up and attract the business angels and venture capitalists and even the pension fund managers who intuitively should be interested in backing long term growth.
That’s why we created the Innovation Investment Fund in July with £150million in public seed capital. Managed by venture capital specialists, it will look to leverage in funds from the private sector with the aim of creating a £1 billion fund over 10 years. The Growth Capital Review, led by Christopher Rowlands will report its conclusions at the Pre-Budget Report and to bring forward proposals for a new national investment corporation.
Like our approach to improving the links between universities and industry, this is a model that sees a critical role for public investment, but which goes out of its way to avoid turning politicians or civil servants into investment managers or technology pickers. Which is a good thing, because it took me months to get the hang of my iPod and I am still discovering new uses for my Blackberry.
Employees into innovators
The third challenge for us as a country is to embed innovation into our higher education and skills systems. When we launch our new higher education framework and skills strategy over the next few weeks, they will directly address our capacity to drive innovation by educating and training innovators.
This is not just about creating entrepreneurs, but about creating employees with the confidence to challenge the ways their companies do things. And the bosses with the confidence to listen to them.
We certainly need to get past the idea that innovation comes chiefly from some cappuccino-drinking ‘creative class’ in our societies – it has to be something that we all have a claim to. That includes the working class kids whose expectations and initiative and drive will often be the key ingredient to creating new jobs in areas struggling with economic change.
Procuring services into procuring innovation
Finally, I do believe that we can do more to drive innovation through public procurement – above all by widening the access of innovative small firms to the procurement process – the firms with new ideas who shake up existing providers.
The Technology Strategy Board has run successful Small Business Research Initiative pilot schemes in partnership with the Ministry of Defence and the Department of Health. The SBRI scheme has now been expanded to include other public sector bodies. For example, the East of England Strategic Health Authority and regional partners, have recently completed a competition with TSB backing calling for innovative new approaches to home treatment and long-term patient health.
The level of interest is very high, with 11 SMEs awarded phase one contracts. The proposed solutions were in many cases new and genuinely innovative. And all the more important in the current environment is that the potential savings to the NHS run into the hundreds of millions.
The concept is very simple. The mechanism is commercial: demand and supply. It is about recognizing that the tens of billions of pounds that the government spends every year on goods and services is a major market-shaper.
By being a lead user government not only encourages innovation, it also indirectly finances it. If we demand innovation, and we make sure that innovative SMEs can compete for contracts, then we will get it. The benefits across government are clear enough. Innovation is how we get more for less. I will be pushing hard to see the SBRI concept extended and protected even through a period of fiscal constraint.
Conclusion: an innovation-led recovery
I started by saying that innovation would be decisive in Britain’s recovery. I don’t think that’s an overstatement. We are a knowledge economy. Innovation is how you actually turn knowledge into rising productivity, new solutions, new growth. Knowledge is the raw material. Innovation is the refinement process.
I’ve defined our challenge today not as pursuing a set of isolated innovation policies, but in building an innovation infrastructure for Britain today. My point in doing that was to remind us that what government does on skills, finance, science – these will decisively shape our capacity as an innovation nation. That is why we have put innovation in the name of the department, and innovation at the heart of the government’s plan for growth.
The TSB has done an exceptional job of building those capacities and my Department is committed to building on this. I want to finish by congratulating Graham, Iain and their team and their thousands of collaborators for playing such a vital part in building Britain’s future. The Government is right behind all that you are doing and helping to pioneer.
ENDS
Department for Business, Innovation & Skills
The Department for Business, Innovation and Skills (BIS) is building a dynamic and competitive UK economy by: creating the conditions for business success; promoting innovation, enterprise and science; and giving everyone the skills and opportunities to succeed. To achieve this it will foster world-class universities and promote an open global economy. BIS - Investing in our future.