Integrating innovation

6 June 2017

Dr Ruth McKernan joined Innovate UK as chief executive in 2015 after 25 years of research in the pharmaceutical industry in the UK and US. She explains how, one decade on from the launch of Innovate UK, integrating innovation into business continues to ensure the UK is fit for the future

What is innovation? Are some kinds of innovation more important than others? 

From Innovate UK’s perspective, innovation is the creation of new products or services. Most of what we fund to help businesses grow and develop has a very high-tech element to it, and we particularly fund things that are integrated. At the CBI Innovation conference there was discussion about artificial intelligence and machine learning, the use of large data sets, and applying that across all industries  manufacturing, healthcare, the energy sector.

I believe the future belongs to the integrators. Whether that’s small or medium sized businesses that are able to integrate machine learning, artificial intelligence and other new technologies to create better products and services, they will be the successful ones.

Where is the UK seeing the most successful innovation?

We funded quite a lot of digital companies a few years ago that have been very successful – SwiftKey, Magic Pony and Improbable. We’ve also funded companies in many areas that wanted to develop a new kind of product, things in genetic engineering and gene therapy, cell therapies, and a whole programme on catalysing new biotech and biomedical products.

The value in a business is first in the people. Having people with the right skills to be able to grow a business is number one

It’s Innovate UK 10th birthday in July, so we've got 10 years of data to say that the money has been spent wisely. For every pound that we spent of public money, we returned £7.30. Some of the products that companies are developing take more than ten years to return the investment, so that £7.30 for every pound spent can only go up. We created 80,000 jobs and supported 11,000 projects.

Improbable, one of the companies you funded, has been bought by Japanese Softbank. Does UK ownership of innovative business matter, or is it about the jobs created?

That is a difficult question. We only fund British businesses from UK public sector funding, but to be successful, companies have to export and they have to grow globally. I think it’s great news when companies are acquired and the investment can stay in the UK. If the business continues to grow in the UK, acquisition can provide much-needed funding for that expansion. Even better are examples where companies grow and their ownership is retained in the UK. You need a good ecosystem of businesses, including big, global, tier-one companies that are stable and underpin pensions with huge portfolios.

The value in a business is first in the people

When we look at the cycle of challenges we’re going to face in the future - the energy challenges, healthcare, looking after the elderly, some really big global and societal issues – we will need the turnover of emerging businesses. So what we have recently started doing is running more challenge-based programmes. Just announced by the previous government was the Industrial Strategy Challenge Fund, looking at harnessing the value of businesses working together. That requires a bit of vision and incentive – they're doing something of huge value and importance that doesn't just build itself from the bottom up. It’s about a good mix of large global corporates and growing British companies that can see their way to massive expansion in the future.

Is IP, then, the most valuable aspect of innovation?

Well, I would say that the value in a business is first in the people. Having people with the right skills to be able to grow a business is number one. Protecting that is important, but if you look at the emerging technologies around machine learning, we’re going to need something different to the intellectual property rights that protect, say, pharmaceuticals, where there's no fuzziness. When it comes to algorithms, machine learning and the way that data is managed, our intellectual property laws don’t really fit that future.

Pharmaceutical companies invest significantly in R&D but the UK as a whole invests just 1.7 per cent of GDP in R&D. How can we boost that?

Most of the grants that we provide to businesses are competitive and they require matched funding. That means that private investors an venture capital firms, for example, or patient capital firms, are very interested in investing in some of the SMEs that we support. Our most recent competition announcement was a programme that allows companies to get investment from the private sector at the same time as an Innovate UK grant, and that’s called the Investment Accelerator Pilot.

We have raised our ambitions along with those of the businesses we support.

There are seven investors who have previously funded many of the businesses that Innovate UK supports. They’ve come together to try out this pilot and see whether offering investor money and grant money at the same time will help grow businesses. And they are actually getting a little bit competitive about which investors businesses will choose.

We also have, at a higher level, the Catapult Network of technology and innovation centres working with 24 different countries. The challenge remains of long-term capital for scaling businesses, longer than venture capital companies want to see their returns, so there's still work to be done there.

How does Innovate UK support the scaling of businesses?

We ran our very first international partnership competition last year, which was to help companies find partners or customers in other parts of the world before their products are completed. Because if you’ve already made it and you're trying to sell it in a different market, you may not have the product that that market wants. You have to work on demand at the innovation stage. We've already got hundreds of businesses who are now working with many different countries across the world to break into new markets by evolving their products to fit.

And we also have the Newton Fund, where we help businesses work with other SMEs in different parts of the world, such as several companies together in India looking to develop systems to monitor arsenic levels in water supplies. We’re looking much more broadly than just providing funding for specific projects, which was brilliant when Innovate UK was starting, but we’re a scale-up ourselves, not a start-up anymore, and we have raised our ambitions along with those of the businesses we support.

Does Innovate UK collaborate with other government projects and departments to achieve that international work?

We work very closely with the Department of International Trade and run missions to other countries in partnership with them. We regularly run a space mission to the US, Houston and Massachusetts, where we take many small businesses that work in space technologies or earth observation, to help build their partnerships and get contracts. And we’ve done the same in green energy several times.

We also work with many government departments to help solve their specific problems. One of hundreds of different projects was with The Metropolitan Police, who asked us to find small businesses to help them monitor and predict out-of-control crowds and where the difficulties in policing would be.

Looking back over one decade of Innovate UK, what have been the points you’ve identified where things tend to stall for small businesses?

Our challenges have probably been no different from the growth challenges any small business would have. First of all, are our systems robust enough to handle a big expansion in business? Do we have the space or additional colleagues? Do we have to change the structure of our network and adopt a regional structure? We have changed the way we work with some of our partners, so that the Knowledge Transfer Network, which has done a lot of our opinion and engagement work, is now a much closer partner than it used to be. So we have a lot of empathy for scaling businesses because we know how it feels.

What are some of the skills you’ve been able to bring from your pharmaceutical background that other innovators might want to add to their arsenal?

First of all, the research background – I’m acutely aware of how many great ideas just don’t work out. So I'm always very encouraging when good ideas fail, because we all learn when that happens.

The second thing is how to structure things, delegate and empower people. The process of innovation is not linear, sometimes products that were first thought to be really good in one area emerge brilliantly somewhere else – everybody knows the best example, Viagra, which started out as a heart drug.

And to put things on the back burner, but never completely give up, because you never know when the time for that idea will come.

How much are you able to share with budding entrepreneurs in terms of the experiences organisations have gained from working with Innovate UK?

We give out awards every year for companies that have been particularly innovative. This year being our 10th birthday, we are going to have a bigger celebration with a much larger focus on case studies. And we’re always happy to put people in touch with businesses that we've supported. We have a lot of resources on our website, including success stories and videos about companies we’ve supported.

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