The New Frontiers of Innovation Policy

Richard Halkett,NESTA Policy & Research Unit

SPRU, Freeman Centre Seminar Series

30th November, 2007

The UK’s ‘poor performance’ in innovation

Policy has focused on improving the UK’s ‘poor performance’

The UK lags behind its competitors on traditional indicators

Overall per capita expenditure on R&D

Business expenditure on R&D

Business levels of innovative activity

Extent of patenting activity

The overall impression is that the UK wastes its potential by failing to invest in innovation, particularly the commercialisation of ideas

The ‘linear’ model of innovation

Knowledge creation

What: Basic science + R&D

Where: Universities, industry R&D labs

Policy response: R&D tax credit, science budget

Knowledge transfer

What: Applied research, development

Where: Spinout companies, start-ups

Policy response: Lambert agreements, TTOs, KTPs, KTNs

What: Product manufacture

Where: Industry

Policy response: None

Commercialised product Consumption

What: Use/ consumption

Where: Individual consumer

Policy response: None

Hidden innovationInnovation that goes uncounted by traditional indicators

Six ‘low innovation’ sectors

Sector Sales/revenue R&D intensity*

Oil £360 billion 0.2 per cent

Construction £17 billion 0.5 per cent

Retail banking £82 billion 0.9 per cent

Education £36 billion <0.1 per cent

Legal aid services £2 billion <0.1 per cent

Rehabilitation £2 billion+ <0.2 per cent

Source: DTI/DfES/Home Office* R&D intensity refers to amount spent on R&D divided by sales

Type I hidden innovation

Based on science and technology but excluded from traditional indicators

Type I: Technology developmentLife-of-Field Seismic was developed by BP and ten other contractors

It uses permanent sensors on the seabed to create time-lapse movies of fluid and pressure changes to show recovery processes working in near real-time

This could increase recovery from Valhall by 60 million barrels, and by one billion barrels worldwide

Source: BP

The Integrated Subsurface Information System (ISIS) in the Valhall Field in the North Sea

Hidden Innovation

How innovation happens in six ‘low innovation’ sectors

Genetic testing in the NHS

Source: Science Museum

Pre-implantation Genetic Diagnosis (PGD) and Pre-implantation Genetic Haplotyping (PGH) procedures can weed out genetically defective embryos before pregnancy

Initial PGD research was conducted in the UK in the late 1980s. Guy’s Hospital Genetics Centre and Kings College London have recently refined PGH techniques

DNA analysis of Duchenne muscular dystrophy (DMD)

The Innovation Gap

Why policy needs to reflect the reality of innovation in the UK

Type II hidden innovation

Innovation in processes, organisational forms or business models

BAA’s Heathrow Terminal 5

Type III hidden innovation

Innovation from the novel combination of existing technologies and processes

The first direct building in Stourton, Leeds. first direct launched in October 1989 as the UK's first branchless telephone bank

Type III: Exploiting technology in new services

Type IV hidden innovation

Innovation that takes place ‘under the radar’ of many surveys

Type IV: Locally-developed small-scale innovation

Engineering consultancies

Source: Mott MacDonald

The Boston Central Artery/Tunnel Project site looking eastwards towards Logan International airport. The last section of jacked tunnel can be seen on the lower right.

The Innovation Gap

Why policy needs to reflect the reality of innovation in the UK

Hidden innovation in ‘traditional’ sectors

Rolls-Royce TotalCare contract covers technical support, management of spares, and product development

Rolls-Royce now makes 53 per cent of its revenues from ‘aftermarket’ services

10-year £1 billion contract with the Ministry of Defence

Users as innovators

What is user-centred innovation?

Traditional, Manufacturer-Centred Innovation Paradigm

Manufacturers identify user needs, develop products at private expense, and profit by protecting and selling what they have developed

User-Centred Innovation Paradigm

‘Lead users’ innovate to solve their own needs at private expense and then freely reveal their innovations

# of usersperceiving need

Time

Users innovate here

First manufacturer product appears here

Target Market

It has been shown that important innovations are often developed by pioneering usersJohn Heysham Gibbon – physician, USER – inventor of the heart-lung machine.

The death of a young patient in 1931 motivated Dr. Gibbon to develop a heart-bypass machine, to enable more effective heart surgery techniques.

Gibbon was dissuaded by all with whom he broached the subject but perservered.

In 1935 he successfully used a prototype heart-lung bypass machine on animals. In 1953 he first used a heart-lung machine on a human patient.

Why did a USER have to develop the first heart-lung machine?

At the start of something really new there is no “proven” market!

Robotic system for neurosurgery

Biocompatible implant for hernia repair

Examples of lead user-developed innovations

Of course, users aren’t always the innovators

Innovations Samples: User Mfr Suplr Other NA Total (N)

Scientific Instruments 77% 23% - - 17 111

Semicon & PC Crd Process

67% 21% - 12% 6 49

Pultrusion Process 90% 10% - - - 10

Tractor Shovel Related 6% 94% - - - 11

Engineering Plastics 10% 90% - - - 5

Plastics Additives 8% 92% - - 4 16

Sports Equipment 58% 27% - 15% - 48

Many users innovate

Industrial Products N % innovating

Printed Circuit CAD – Urban and vH 136 24.3%

Pipe Hanger Hardware – Herstatt and vH 24 36%

Library IT Systems – Morrison Roberts, vH 102 26%

Software security features – Franke and vH 131 19.1%

Surgical Equipment – Luthje 262 22%

Consumer products N % innovating

Outdoor Products – Luthje 153 9.8%

“Extreme” sports equipment 197 19.2%

Moutain biking equipment – Luthje, Herstatt, vH 291 19.2%

Open innovation

“Closed” Innovation “Open” Innovation

Open innovation

InnoCentive

‘Seekers’ ‘Solvers’

Companies like InnoCentive help open innovation clients like P&G search “outside the firm”

Other exciting areas…

Public and social innovationThere are four factors for sustainable growth: ‘pull’; ‘push’; strategies that connect pull to push; and learning and adaptation. Many social innovations have foundered because these are missing or ‘out of sync’. However, maximising social impact is not the same as growing organisations

In and Out of Sync

The challenge of growing social innovations

Spectrum of models of diffusion and growth

Creative and cultural industries

Source: Work Foundation

The UK has the largest creative sector in the EU, and probably the largest in the world relative to GDP.

Innovation and creativity in the wider economy are stimulated by the creative industries. This captures a shift in which a critical mass of economic activity is knowledge production, as firms deploy new techniques and technologies to meet changes in demand.

The creative industries: a stylised typography

Staying Ahead

The economic performance of the UK’s creative industries

Rural innovationRural innovation is likely to be an important area for innovation, for example in environmental and sustainable technologies.

In part this is being driven by the need for the diversification of traditional sectors, such as farming.

The resulting forms of innovation are likely to impact on both rural and urban areas.

Harlock Hill, Cumbria, the site of five turbines owned by the Baywind Energy Co-operative

Cities and regions

Cities offer the advantages of proximity, density and variety.

Some are ‘urban hubs’ which attract business and generate innovation through critical mass. Others offer ‘local links’ where clusters of businesses and connections make the whole greater than the sum of the parts.

Actors must play different roles along the ‘regional innovation journey.’

Innovation in UK Cities

Findings & policy implications

Importance of framework conditions

Source: DTI/UKOOA

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Hidden innovation policy

Despite the focus on ‘generic’ interventions such as R&D support, there are many examples of interventions to stimulate and support innovation in specific sectors.

These are rarely considered (or coordinated) as mainstream ‘innovation policy.’

Constructing Excellence has acted to coordinate and support improvement and innovation initiatives in the construction sector

Recommendation: Develop sector-specific innovation agendas with industry

UK construction industry innovation agenda

Recommendation: Create a UK-specific Innovation Index

UK construction industry benchmarking KPIs

What we’re learning

There are not always policy recommendations…

Government cannot do this alone

Policy must move beyond science-based manufacturer-led innovation to encompass other forms that come from elsewhere in the supply chain

Policy needs to support systems and include diffusion and adoption, not just invention

Developing a full innovation strategy will depend on working closely with industry to identify the innovation that matters most to each sector

A sector-relevant Innovation Index would better guide policy development

Innovation needs to be at the heart of – and across – policy

Recommendation: Place innovation at the heart of government

• What organisations say they do

• What organisations actually do

• Which portions & linkages of the innovation system they are positioned to address

• Coverage of relevant stakeholders

• Coverage of the UK

• Size & source of budget

• etc…

Many dimensions of comparison

Four broad groupings around innovation

Policy/ governance

Research-led Practice-led Influence-led

Enterprise Insight

Commentators

A functional Ecology of Innovation

Policy/ governance

Practice-led

Research-led Influence-ledx RCUK

x PRESTx SPRU

x Pembridge

x Enterprise Insight

x IP2IPO

x UCSF

x RSA

x Design Council

x Arts Councilx BVCA

x CBIx Demos

x IPPR

x Commentators

x DTI

x HMT

x RDAsx DCMS

Each group has strengths and weaknesses

Strengths (+) Weaknesses (-)

Policy/ governance

Actually decide policy

Significant budget

Access to stakeholders

No long-term view

Inflexible resource allocation

Political shadow

Research-led Independence

Rigour of analysis

Abstract/irrelevant

Poor communication

Practice-led Practical experience Lack of time for reflection

Influence-led Well-connected

Articulate

Flexible

Heavily London-centric

Message > content

No long-term view

Lack of resources

Recent policy developments

1. Changes in machinery of government

2. Reformed Technology Strategy Board

3. Lord Sainsbury’s Review of the Government’s Science & Innovation Policies

4. Comprehensive Spending Review & Pre-Budget Report

5. Likely White Paper/DIUS strategy Q1 2008

You are invited to...

NESTA’s Place Summit: Making Innovative Places Wednesday 12th December

from 9.30am to 7pm at NESTA, 1 Plough Place, London

We will be launching three new pieces of research looking at the role of regions in stimulating innovation.

The day will be rounded off with a keynote speech by AnnaLee Saxenian, author of “Regional Competitive Advantage” and “The New Argonauts”, on the attributes of innovative regions, with a particular focus on the role of policy in stimulating (or preventing) innovation.