Innovation is critical to business success according to 93 per cent of UK companies who dedicate an average of 12 per cent of their turnover to innovation activities - a major new CBI/QinetiQ Innovation Survey reveals today (Sunday).
But Government policy is failing to support large swathes of innovation activity because it is focusing its attention almost exclusively on research and development (R&D) and supporting science and technology research at the expense of other areas of business innovation.
In the survey, only 41 per cent of companies agree that R&D is the best indicator of innovation activity and only a fifth (20 per cent) agree that all innovation is dependent on technology developments.
The DTI’s R&D scoreboard of the top 750 UK companies equates R&D spend to approximately 2 per cent of sales on R&D, which is around £17 billion. This survey suggests that companies are actually spending around six times that amount on innovation-related activities.
CBI Director-General, Sir Digby Jones said:
“This survey shows UK companies take innovation very seriously and invest significant amounts of their profits in developing new ideas and finding better ways of working.
"Government expresses strong support for business innovation but most of it is focused at the R&D technology end. Service sector innovation may be more difficult to pin down but as services now account for 70 per cent of the UK economy, Government has got to put this sector firmly on its innovation policy radar. As well as the DTI's R&D Scoreboard, there should be an 'Innovation Scoreboard' to reflect the wide spread of activity that companies undertake."
According to the survey, 94 per cent of companies are funding their innovation work through profits, with a quarter of firms using government grants and 17 per cent using banks. 50 per cent of firms said they find it very or fairly hard to access external finance. Any further squeeze on company profits - for example from additional tax burdens – would reduce the ability of companies to finance innovation work.
Sir Digby Jones continued: “Government has an important influence on innovation through legislation and other initiatives but can make the greatest difference through its procurement.
"Government spending power is enormous - £125 billion a year. The message from this survey is that government should engage with companies in a more informed way, it should buy more innovative goods and services and get more closely involved with companies at an earlier stage in the procurement process.
"Clever procurement by governments can enhance productivity and stimulate innovation as demonstrated by some of our best continental rivals.”
A large number of companies believe that current government procurement practices hinder business innovation. Sixty-nine per cent agree that government procurement skills are a major problem and 79 per cent disagree that government supports innovation by acting as an early adopter of new ideas. The survey also highlights the problem of poor specification.
Companies were asked to rate the importance of nine areas that government could improve. The top three priorities were; gearing the education system to produce more and better science graduates, widening the R&D tax credit to cover other aspects of innovation and increasing the level at which the R&D tax credit is set.
Of ten factors that companies were asked to rate for adding value to innovation in their company, the most critical were understanding the market and having a workforce that is able to identify, develop and adopt new ideas. 56 per cent agreed that innovation is always market driven.
OTHER KEY FINDINGS:
Approaches to innovation
Companies are becoming more sophisticated in their approach to innovation; 56 per cent say the most important source of ideas for innovation is from within the company, 67 per cent specifically train managers to identify and develop new ideas, 79 per cent monitor and learn from failure rates on innovation projects and 68 per cent use strategic market assessments to spot opportunities.
Collaboration
78 per cent of firms recognise that successful collaboration can enhance their innovation, 98 per cent collaborate with external partners, 85 per cent collaborate with other companies in their supply chain, 77 per cent work with either universities or consultants while only 40 per cent work with government research institutes. Although more commonplace not all collaboration is successful. For 48 per cent the most successful collaborations are with other companies in the supply chain, the least successful are with universities and government research institutes (28 per cent).
Universities
Nearly three-quarters (74 per cent) of firms don't believe that academics understand business needs. But 60 per cent see university spin-outs as an effective means of taking new ideas to market and 53 per cent agree that universities are a good source of training for business. 50 per cent said that universities offer useful consultancy advice. A separate survey of universities found that 45 per cent acknowledge that they do not fully understand the needs of business but 91 per cent see business as an important customer and agree that they need to strengthen their links with business.
Regional Development Agencies
Innovation is seen as important when it comes to raising regional economic performance. But if RDAs are to facilitate business innovation in the regions, the survey suggests that much needs to be done. 51 per cent of firms agree they attract private sector investment into the area and 50 per cent that they help business to business networking but 53 per cent rate RDAs as not very / not at all effective for the help they give companies to get better at selling their ideas to potential backers or for their help regarding links to get the right technologies into their business. Forty-seven per cent believe the RDAs are not very effective at co-operating with each other to meet the needs of business.
On the basis of the survey and other innovation work, the CBI has made a number of recommendations to government, which include;
- The support and stimulation for innovation must better reflect the composition of the economy and recognise the needs of all sectors.
- Action should be taken to equip central and local government to become early adopters of innovation. Public procurement needs to improve as a matter of urgency.
- Collaborative activity should be promoted and encouraged across a broad range of organisations. The role played by government research institutes needs to be reviewed.
- Innovation funding needs to be more clearly focused. There should be improvement in the administration of the R&D tax credit and possible widening of the credit to cover other elements of innovation work.
The research for the Innovation survey was carried out by MORI on behalf of the CBI and QinetiQ. Interviews were conducted by telephone between 12 September and 7 October 2005. 173 interviews were carried out - 162 from business,11 from universities.
Copies of the MORI report on Innovation can be obtained from the CBI Press Office.
* Innovation with Dragons' Den at the CBI will be a key session at the CBI Interactive Conference on Monday 28 November *