Innovation must be part of the route to growth

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Yesterday's growth figures have provided some welcome relief from the slough of bad news we've had on GDP in the last year, but – as Rachel pointed out in her blog yesterday – the question is whether yesterday's estimate is enough to signal an improvement in the underlying growth picture.

Even a relatively positive scenario for the next couple of years is for modest growth, as Europe continues to stumble through its crisis, and governments around the world cut back on spending to reduce their debts. In this situation, we need to ask how we can build sustainable growth in the longer term. Growth that is less reliant on debt and consumption, and more driven by investment and exports.

Innovation will be a key part of achieving this: without effective innovation companies cannot translate ideas and basic research into market-ready products and services.

Manufacturers rely on innovation for growth.

For example, one key growth opportunity for manufacturers is selling new products and services into new markets: rarely does a product go into a new market without some form of innovation, be this design alterations, or new marketing, innovation is key to this goal.

The good news is that most manufacturers are already engaged in innovation.

Around 80% of manufacturers are engaged in some kind of innovation, and they are innovating broadly. While the most common form of innovation is product development, process innovation and service innovation are widespread, and companies are also investing in areas such as marketing, distribution and people management innovation.

While the innovativeness of individual manufacturers is a real positive for the UK, there is a question as to whether – looking at the economy as a whole – we innovate effectively enough.

The UK has significant strengths in basic research but we do not always translate this effectively into a competitive advantage. When we look at the sales of new-to-market innovations, the UK lags behind its competitors in Europe: at a macro level the UK needs to develop its ability to develop and apply basic research.

It's not necessarily a surprise that innovation isn't always successful. Innovation is a difficult and risky process.

Many firms face barriers to innovation. Some can struggle to innovate to cost and to time, often because they lack the expertise, knowledge or facilities to innovate effectively. These are particularly pertinent challenges for smaller manufacturers.

There are external barriers too: in particular a lack of demand for innovative products; access to finance; and concerns about intellectual property protection.

Manufacturers are, however, taking steps to overcome the barriers that they face

One of the most common methods manufacturers use for overcoming barriers is to collaborate, particularly with their customers, or with their supply chain, sharing expertise, ideas and facilities in the process. Many manufacturers also see training their staff and investing in new equipment as important steps towards improving their innovation performance

For one fifth of manufacturers direct government support was also seen as a way to overcome barriers they faced in the innovation process: this could take the form of funding for training; funding/grants for research; and support for breaking into overseas markets.

Looking at government support, there have been a series of positive policy developments:

  • The network of Catapult centres which are aimed at bridging the gap between basic research and commercialisation. Already, we have seen that manufacturers are keen to engage with theses centres.
  • Innovation vouchers should also provide support in this area, as they encourage companies who have not previously engaged with the research base to do so. While the scheme is only limited to a few sectors, evidence does suggest Innovation Vouchers can be an important spur to encourage collaboration
  • Increased resources for the TSB to better leverage European funding are positive, especially at a time when budgets are tight
  • The forward commitment to procurement puts forward best practice guidelines to communicate the government's needs to business and should help by providing information on its unmet needs and the scale and nature of the market opportunity; providing a credible demand for innovative goods and services

But there is more that can be done, and not just on individual policies

With all kinds of investment – particularly innovation – uncertainty is the enemy. This is why it is crucial that government sets out a clear vision of the kind of economy we want to see. This vision should be the central driver for policymaking. Good innovation policy is like good innovation: it is strategic and focused on delivering long-term returns.


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