There’s a distinct sense of déjà vu about the government’s latest consultation paper on industrial strategy. Perhaps it’s not surprising given that, according to the Institute for Government, this is at least the tenth major review of its kind in the past 20 years. The underlying narrative through them all has been essentially similar: the UK hasn’t done enough to translate its world-class research strengths into business competitiveness, and that’s why it lags behind other Organisation for Economic Co-operation and Development (OECD) economies in terms of productivity, innovation and growth.
The imminence of Brexit makes the challenge of solving this problem even more critical and urgent than ever. But if successive efforts over the past 20 years haven’t succeeded, how confident can we be that the current proposals will fare any better?
Technology-push hasn’t worked
The factors many people blame for our relative under-performance in technology-led growth are equally familiar: under-investment in R&D; shortages of highly-skilled people; the concentration of capabilities in London and the South East; and business in other countries being more prepared to exploit the commercial potential of research discoveries.
Running through all these analyses is the paradigm of technology-push. Here innovation – whether it’s new products and processes, or solutions to societal or environmental problems – is the outcome of a linear pipeline from the university or industrial lab through to proprietary applications and products. Successive industrial strategies have tried to make this pipeline work better. They’ve done it mostly by selectively injecting funding and running initiatives to overcome specific barriers, like skills shortages.
But what if it doesn’t work like that? What if the alchemy between research and development and value-creating innovations actually happens in quite different ways to the technology-push paradigm promoted by successive UK strategies? Compelling evidence from the countries and businesses whose performance we aim to emulate – and our latest innovation research – shows that innovation and growth result from a quite different, systemic approach to the challenge.
Innovation: it’s a system thing
Four overlapping trends are redefining our understanding of the nature of innovation and how it happens in today’s world. They are:
- Challenge-led innovation: instead of looking for the potential practical applications of new scientific discoveries, national and international strategies are re-orientating the research and development agenda towards solutions to specific technical and societal problems. These problems are often framed in terms of complex societal challenges, from reducing transport-related pollution to managing the implications of an ageing population. The innovative solutions to these challenges involve integrating inputs from multiple disciplines and perspectives. This in turn calls for very different approaches to traditional technology-push mechanisms, both from governmental policymakers and university and industry R&D operations.
- Open innovation: in particular, challenge-led innovation depends on bringing together the elements of innovative solutions from many different sources and at different stages of the value-realisation process. In fact, our newly released innovation research finds more than half of 800 global executives surveyed believe they are more likely to achieve success if they source innovation from outside their organisation. Open innovation challenges conventional notions of proprietary ownership and control of intellectual rights. Instead, according to MIT’s Henry Chesbrough, it favours ‘combining internal and external ideas as well as internal and external paths to market to advance the development of new technologies’. In this approach, which marks the innovation strategies of high-performing corporations and governments, innovations emerge from extended networks including researchers and developers, funders and end-users (among others).
- Innovation ecosystems: this is the notion that innovation emerges by pooling objectives and contributions from many different players. It’s prompted analogies with biological ecosystems, where overlapping interests and complementary capabilities combine to benefit everyone. These innovation ecosystems can grow organically as clusters of market-leading capabilities, like Silicon Valley or the Cambridge Biomedical cluster. Or they can develop through planned developments like the triple helix collaboration between government, industry and universities to build a world-class advanced chemicals centre in Maastricht, Holland.
- Place-based innovation: a common feature of innovation ecosystems is that they’re concentrated in city-regions. This reflects the fact they thrive on human interactions and proximity to peers and partners. This feature marries well with the emphasis many countries are increasingly putting on place-based economic development and growth strategies. We see this in the UK through the government’s focus on devolving responsibilities and funding to combined authorities and local enterprise partnerships. There’s strong evidence that encouraging focused innovation ecosystems can be a powerful force for overcoming regional disparities in growth, investment and employment. What’s less clear is how best to do it.
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Local innovation: the best route to success
This piece argues that our industrial strategy should help to build stronger local and sector-based innovation ecosystems. This is a vital part of working towards economic objectives such as enhancing the impact of R&D, improving competitiveness and productivity, modernising industries and public services, and reducing regional disparities. These ecosystems have various elements and dynamics in common as demonstrated in the graphic below.
- Core requirements: established innovation ecosystems bring together and build on core capabilities, which are all essential for the success of the system:
- a highly-skilled local workforce, covering the full range of capabilities from fundamental research to stakeholder co-ordination, and all levels from middle-tier technicians to senior academics and professionals
- advanced R&D capabilities around particular technologies and/or challenge areas, found in university departments, industry development facilities and national hubs, such as Catapult Centres
- a strong industry base, extending from large corporations (often with international reach), to ambitious small and medium-sized enterprises and start-ups, as well as enterprising public service providers
- a range of funding facilities, including ‘patient’ R&D funding, seed-corn and development funds, investment capital and working capital, all with a ‘line of sight’ to the potential value created from innovation
- a shared culture of entrepreneurship and risk-taking in a context of political consensus and stability, particularly from the governmental and public agencies supporting ecosystem development.
- Bridges and connections: these core capabilities must come together in communities united by shared interests in particular opportunities, problems or challenges. For example:
- Local challenge networks, information exchanges and networking
- Shared research and development facilities and demonstrators, often in science and innovation parks
- Staff exchanges and collaborations, such as Knowledge Transfer Partnerships
- Strategic leadership and orchestration, whether from local enterprise partnerships and development agencies, universities or client groups (such as the NHS and welfare services).
- Focused mobilisation: networks and connections established through these kinds of networks are then the basis for initiatives, both to grow the ecosystems’ capabilities and to mobilise them towards agreed goals. Examples include:
- Local or sector challenge programmes, from reducing transport pollution to integrating e-health and welfare services
- Collaborative R&D programmes geared to complex multi-disciplinary problems like autonomous transport systems or cyber security
- Collaborative education and training to tackle specific skill and capability gaps in today’s workforce and tomorrow’s
- New consortia, possibly on the triple helix model, to implement innovative solutions to business, technical or societal problems.
- Impacts and outcomes: in line with the challenge-led view of innovation, it’s important that innovation ecosystems are clear about their aims and impact and that they monitor their success against these criteria on three levels:
- Progress against the challenges or problems the ecosystem was developed to overcome – has it produced worthwhile innovations
- Economic impact – has it added value by creating or sustaining jobs, attracting investment or generating societal benefits?
- Ecosystem development – has there been tangible improvement in local capabilities and how effectively do they work together?
- Feedback and learning: the real power of ecosystems is that together the players and agencies are more able to learn how best to further their shared goals. That could be through continuous evaluation or feedback and remedial interventions between the parts of the system to spot and learn from, including:
- Impact failures – is the system delivering the results it wants and growing in its capabilities and impacts?
- System failures – are the connections between the players working effectively, and is there the leadership to align and orchestrate their inputs?
- Capability gaps – are there shortcomings in any of the critical requirements for an effective ecosystem, and agreement on how best to overcome them?
Four steps to successful local innovation
The technology-push paradigm of innovation can claim many great successes, from medical breakthroughs to technological advances. But it’s an uncertain, almost serendipitous, approach, where much fundamental research leads nowhere while wicked business and societal problems persist.
The model of challenge-led innovation through open, purposeful and multi-player networks offers a powerful alternative to the current industrial strategy proposals and similar precedents. It addresses specific economic and societal objectives more directly, and it builds more sustainable and predictable capabilities for success. An industrial strategy designed to build local innovation and learning ecosystems around the UK would have four key strands:
- Identify the particular challenges or opportunities that city-regions could address if they grow current or latent innovation capabilities
- Develop the essential capabilities and attributes for effective innovation and learning ecosystems at local or regional levels
- Establish structures and processes to connect and mobilise the key agents of innovation around regional challenges
- Enable the system to learn and develop through smart monitoring, evaluation and feedback.
Running through each is the paradox of ecosystem leadership. By definition, responsibility for the growth of innovation and learning ecosystems must be owned collectively by a community of autonomous stakeholders, none of whom has authority over the others. Government and its agencies can facilitate collaboration but can’t decree it. Work is needed to identify examples of successful innovation ecosystems around the world, and to understand how they have converted latent possibilities into collaborative innovations. An industrial strategy that addresses these questions will go far to overcome the limitations of its predecessors.
Read more about our response to the Industrial Strategy