Innovation Monitor 2014/15: Coming into Focus

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This morning we are launching the EEF/NatWest Innovation Monitor 2014/15.

I'm going to be blogging about it over the next couple of days:

Today I will focus on recent trends in innovation activity, and tomorrow - after our launch event (see #EEFIM) - I'll look at the implications for policy.

Innovation is central to manufacturers' growth strategies. Once again this year we saw that 95% of manufacturers were engaged in innovative activity over the last three years.

But the drivers of innovation are shifting. Last year, when we published Innovation Monitor 2013 manufacturers had been through a period of long, slow growth. We reported that they used innovation as a response to this: developing new products and services to help them sell into new and faster-growing markets.

95% of manufacturers said they engaged in innovative activity in the past three years.

But this year, things have changed. Demand is growing. The economy is forecast to grow strongly. And manufacturing is forecast to grow strongly too: after shrinking 0.7% last year, manufacturing is set to grow by 3.6% this year. As a result of this, manufacturers are busier, and this is starting to put pressure on internal resources, everything from employees' time to working capital.

2013 2014
-0.7%3.6%
Growth rates in manufacturing (2013 actual, 2014 forecast). Source: EEF Manufacturing Outlook, June 2014.
Innovation – as with other aspects of business activity – has had to become more focused.
2013 saw a spike in the breadth of innovation
Percentage of companies engaging in three or more types of innovation

Source: EEF Innovation Monitor Survey

Whereas last year's survey saw manufacturers looking to sell new products to new markets, this year it is the UK economy where growth has really picked up. As a result manufacturers are particularly focused on using innovation to satisfy their existing customers.

Manufacturers increase focus on existing customers
Percentage of companies citing driver of innovation

Source: EEF Innovation Monitor Survey

Even though the breadth of innovation has narrowed this year, the broad range of innovations manufacturers have previously engaged in should stand them in good stead as the economy moves from recovery to growth.

There are however, questions about whether a more focused approach to innovation will be enough to drive long-term growth, both for manufacturers and the economy as a whole. Encouragingly, most manufacturers report that they are planning to increase expenditure on innovation, though in most cases, planned increases are moderate.

2013 2014
19%26%
Percentage of manufacturers who agreed, or strongly agreed that they were falling behind competitors due to their level of investment in innovation. Source: EEF Innovation Monitor Survey.
In addition, we have seen an increase over the year in the proportion of companies reporting that they are concerned about falling behind their competitors.

In tomorrow's blog we will discuss the policy implications.

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