This article was first published in Real Business
Despite dozens of initiatives over many decades, the UK’s inability to convert creative research into exploitable commercial opportunities remains a problem. Great ideas get stuck never making it out of research journals, and potentially great companies flounder because inventors lack the skills necessary to be successful entrepreneurs. Too many world leading opportunities get exploited overseas because we can’t or won’t take the leap ourselves. In this context, it is interesting that the first pillar in the government’s recently published green paper “Building our Industrial Strategy” focuses on investing in science, research and innovation. Following its release commentators have suggested that a cultural change is needed to secure economic gains from innovation.
We don’t lack the creativity in this country to innovate. Where we fall behind is converting research into a commercially viable product which will deliver economic returns. And this is due to culture and behaviour.
Only this week PA published innovation research which questioned over 800 business leaders about their innovation practices and performance. We know that organisations are missing out on the potential of innovation to drive progress.
We need to start truly incentivising researchers and academics to push their ideas into the commercial realm, but remain cognisant of the innovation pitfalls, highlighted in the PA research.
Getting the funding system right
For very good reasons, funders of research and technology transfer in the UK are wary about tying funding too closely to measurable, pre-determined outcomes. It can restrict creativity, hamper innovation and lead to target chasing. However, too often once funding is granted for a project, review meetings tend to be treated as a formality, often recycling the same information presented at the last review and not moving the idea towards successful commercialisation. This is a challenge all innovators face and mastering it is a key differentiator identified in our innovation research. 61% of the most innovative firms we surveyed believe they are very good at measuring the value of innovation, compared with 47% in the wider survey group.
Funding should encourage researchers and academics to think commercially, but we must recognise that they are often less motivated by profit than those in the private sector. They are instead driven by the rewards and recognition they get from furthering their work, which should be a consideration when it comes to funding the commercialisation of their ideas.
What is needed is a dual approach. Grant funding should continue to be made available for exploratory and early stage research, but continued funding must be made contingent on impact. This would mean further grants would be linked to the delivery of activities acknowledged as early stage indicators of successful commercialisation. These could include developing commercial scale demonstrators and securing private sector investment or endorsements by recognised market makers. This will provide an incentive to push for innovations to be exposed to the market at a much earlier stage as the market’s recognition and endorsement plays a role in securing further funding.
Support innovation to get to market quicker, and then iterate
There are also lessons to be learned from new methods in project management and software development. The traditional approach, known as waterfall, means you decide what to do, build it and then deliver it. This leads to long lead times and often inflexible solutions. In contrast, the agile approaches that are now widely used prioritise getting the minimum viable product (MVP) into the market as quickly as possible and then continuing to develop it in response to how the market reacts. In the most innovative firms we engage with, executives are 10% more likely to believe they were very good at this rapid deployment and customer testing.
In some ways researchers and academics are very agile in the way they innovate; the direction of their work will often change completely as their findings evolve. This allows for true innovation. But when it comes to commercialisation of the ideas developed in universities there isn’t the support or legal mechanisms for researchers to take an agile approach to getting their MVP out into the market.
To take an idea from a proof of concept or small demonstrator and test it in a commercial environment requires the inventor to leave their university. This is a significant risk for the individual who abandons the safety of a university career and puts their reputation and financial security on the line. As a result it is virtually inconceivable that anyone would release a product into the market before they are 100% sure that it is fully developed. That means many ideas get stuck at the theoretical stage or take far too long to get to market and end up being exploited overseas.
There is, however, another approach. The Financial Conduct Authority’s (FCA) created a regulatory sandbox model. This is a “safe space” where innovators in financial technology can test products or services in real market conditions without posing a risk to consumers or the wider financial system. Regulatory issues, which may prohibit the innovation being deployed, are addressed by creating a temporary regulatory framework through wavers and non-action agreements with the authorities. Consumers are protected as they are informed that the product is being tested and is operating outside of the normal regulatory environment but they can otherwise interact with the innovation almost like any other. This allows innovators to get ideas into the market before they are certain about all the variables and learn from how the market reacts. It also supports regulators to understand how the market is evolving and how they can better support and protect the economy.
Universities’ commercialisation departments can emulate this approach. They could allow inventors and researchers to play in near real market conditions, vastly reducing the risk of full commercialisation. They could do this by setting up an affiliated commercial organisation through which inventors could develop their products by using a time bound licence for the use of the university’s intellectual property. Then, in collaboration with the relevant authorities and regulators, they could take similar steps to adjust the regulatory framework and protect consumers. This would mitigate the personal risks faced by academics thinking about commercialising their idea, as well as exposing them to the reality of the market.
Innovation Matters: what are the innovation leaders doing right?
Help innovators to let go if they want to make their mark
The next factor that needs to be tackled to improve our record of getting ideas to market is the commercial capability of the inventor. Often the person who developed the idea is too close to the innovation to be able to address the issues that are stopping it from scaling up, or they simply lack the commercial skills to make the business successful.
Many universities work very well with inventors to help them understand the capabilities they may lack but more could be done to formalise this support. Large companies have been successfully using accelerators as a way of de-risking investment in start-ups for a number of years, in fact over a quarter of the innovation leaders we identify work frequently with accelerator programmes. These provide entrepreneurs with a structured programme of support and mentorship. They are highly competitive and put the start-up under a degree of pressure which will either make or break them.
Universities can use similar mechanisms to help develop the commercial capabilities of potential spin outs. However, in contrast to their corporate cousins, the de-risking should focus on supporting inventors to take the role that best suits them and their invention and act as a match maker to bring in the commercial expertise as well as developing entrepreneurial capabilities. Their primary focus is to make the potential spin out investment ready. This should include using its connections in the university to explore opportunities across supply chains. It must also take a more active and critical role in developing the skills and capabilities missing from the venture. More than anything, it must be practical not theoretical using partners, alumni and mentors to bring inventor founders out of their academic comfort zone. This is supported by our research which found that 61% of innovation leaders believe they are more successful when they source external expertise in their innovation processes, as opposed to only 52% of their peer group.
Each of these steps, linking funding to commercial activity; supporting an agile approach to commercialisation; and helping inventors or founders with the skills they need can all play a critical role in cracking the commercialisation challenge. In that way we will be able to harness the UK’s undoubted creativity and unlock future economic opportunities we haven’t even imagined yet.
Khalil Souki is an economic development expert at PA Consulting Group