Dynamic innovation: good news for the UK economy

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Today we have published the EEF/NatWest Innovation Monitor 2013, the fourth in the series of our survey of innovative manufacturers.

It's good news!

Although the past few years have been challenging ones, manufacturers have continued to innovate. They've also been innovating broadly.

Nearly all respondents said they were engaged in some kind of innovation, and three quarters said they undertook three or more types of innovative activity in the last three years.

The past three years saw something of a focus on process innovation, as companies looked to take costs out of production, improve quality and reduce lead times. Much of this was linked to ensuring they could satisfy their existing customers. But – as we all know – demand in the UK and Europe has been sluggish, and even if we see the recent uptick materialise into a stronger recovery, many of the growth opportunities for manufacturers lie outside of traditional markets. Manufacturers are using innovation to respond to this.

71% of manufacturers said that they plan to innovate for new export markets in the next three years, compared with 54% in the past three years.

This step up in ambition is great news, and should help manufacturers to deliver the kind of export-driven growth the UK economy needs. But innovation is far from an easy process. One of the biggest problems manufacturers have always reported is speed to market. If anything this has become more of a concern.

75% of companies say speed to market is more important than it was in the past

Moving into new export markets exposes companies to new competitors – who are also innovating and trying to gain an edge – which can make speedy innovation even more important. In addition, product life cycles are shortening thanks to fast-developing technologies. This is particularly true in consumer facing sectors (just think how often you change your mobile phone).

So what stands in the way of speedy innovation? For many manufacturers technical barriers are the key hurdle: things like access to expertise, equipment and facilities.

Nearly a quarter of manufacturers described technical barriers as the biggest hurdle when it comes to innovation

Although technical hurdles present a barrier, most manufacturers are working with partners to overcome this. Customers are the most frequent partner – hardly surprising as these are the people who have a good understanding of a company's products, and are ultimately going to pay for them – but companies are increasingly working with research institutions such as universities.

We've seen a steady increase in the proportion of companies working with universities since we first asked about this in 2009, and in part this reflects changes in government policies to incentivise universities to reach out to business as well as schemes such as the Knowledge Transfer Partnership, place a recently qualified person in a company, and provide a link back to their research institution.

In fact, government support is – on the whole* – well-geared towards supporting innovative manufacturers. As such, the increase to the budget of the Technology Strategy Board (the innovation agency) announced in the Spending Round was a welcome move, and a much-needed recognition of the important role innovation plays in economic growth. But there is no commitment to innovation spending beyond 2015/16.

We must not see “feast and famine” when it comes to innovation spending. The TSB commits much of its funding four or five years in advance. If funding were to be cut this could seriously hamper the organisation's ability to run new competitions. As a result we are calling for a longer-term commitment to the TSB's budget. One way to do this would be to protect the TSB's budget along with the science budget in a ‘science and innovation' ring fence.

We've seen an increased commitment to innovation on the part of manufacturers, the same sort of commitment for innovation support could make all the difference.

The full report is available here:

Innovation Monitor August 2013.pdf (1.67 mb)

*I will blog about some of the other ways support could be improved another time.

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This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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