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Productivity & Innovation

The UK productivity puzzle. Opinions differ on why UK productivity has failed to keep pace with our global competitors. The government’s recently published “Productivity Plan”, lays out the stark facts that we are 31% behind the US, 28% behind Germany, 27% behind France and 17% behind the G7 average[i]. As a result, the government has placed productivity at the very core of its economic plans. So how do we achieve a step-change in the UK’s productivity?

Productivity versus growth. Lets start by understanding a bit more about the problem. The good news is that the UK economy has been successfully growing its output and employing more people, whilst other economies have stalled. The dilemma is that the UK output has grown largely in line with employment whilst our competitors’ output has grown faster than employment and as a result many of them are progressively delivering a much higher level of output for each hour worked. So even though our growth is very welcome news indeed in the short term, we are steadily becoming less competitive and will therefore inevitably lose out, in the medium to long term, to more productive global competitors. If we think of the economy as a machine, in the UK we have been concentrating on growing the economy by getting more people to turn the handle of the existing machine, whilst our competitors have been building a longer term advantage through investing in a much better economic machine.

Building a better economic machine. There are many facets to productivity and as with so much of economics, it’s a complex interrelated system of systems. The government’s Productivity Plan is founded on two main pillars: Firstly encouraging long-term investment in economic capital, infrastructure, skills and knowledge and secondly promoting a dynamic economy that encourages innovation and helps resources flow to their most productive use.  These are all weighty topics but “encouraging innovation” is something Innovate UK knows how to do and according to studies by the OECD and Nesta, it is innovation, which accounts for 25 to 50% of labour productivity growth. So if we want a step change in UK productivity, we will make big strides towards achieving that goal through having an ambitious plan for a step change in business-led innovation.

Innovate UK’s 5-point plan. Over the last 3 months, Innovate UK has been putting together a 5-point plan in order to rise to the challenge of delivering a step change in innovation right across the UK. Our Chief Executive, Dr Ruth McKernan, recently presented an overview of that plan to an RCUK event focused on ensuring that the UK remains the very best place in the world to research, innovate and grow[ii]. Lets finish by considering each point of Innovate UK’s plan.

1. Accelerating UK economic growth. This has always been the mission of Innovate UK and going forward we will raise our level of ambition for the UK by enabling the very best, high potential businesses to scale all the way to highly productive mid sized companies embedded in the value chains of key sectors.

2. Building innovation excellence throughout the UK. It was at the end of last year, that the updated Science and Innovation Strategy recognised for the first time the importance of place[iii]. The government’s Productivity Plan, calls for resurgent cities, a rebalanced economy and a thriving Northern Powerhouse. Recently BIS published an analysis of the geographic distribution of Innovate UK’s investments[iv]. You might be surprised to learn that if you look at our expenditure by head of population, the top three regions, which won Innovate UK funding in 2013-14, were the North East, the South West and the East Midlands. Scotland won exactly the same level of investment as the South East and the investment in London was less than the UK average. The competitions Innovate UK are running are successfully identifying innovation right across the UK and our new level of ambition is to build on those local strengths and to encourage the scaling up of highly productive businesses throughout the UK.

3. Developing Catapults within a UK innovation network. Where do you go for help if you want to move your business onto the leading edge? Each of the Catapults brings together under one roof in depth expertise and equipment which enable companies to reinvent themselves and transform the way they do business, whether that is in High Value Manufacturing, Satellite Applications or in the future, Medicines Technologies (the very latest member of the Catapult network to be announced). The government’s Productivity Plan also recognises the critical importance of transforming the UK’s transport, energy and digital infrastructures in order to strengthen productivity and each of these is a priority area in Innovate UK’s investment plan and a key focus of our Catapult network.

4. Working with the research community and across government. We have an outstanding research base in the UK, creating new opportunities and a fresh perspective on the challenges ahead. Our plan seeks to raise the level of ambition in translating and commercialising that research within the UK economy or the spillover effects will simply be left to fuel the productivity growth of our global competitors. The government Productivity Plan also calls for an improvement in public sector productivity to benefit the economy, taxpayers and those who use public services. There is a powerful win-win here for the government if it seeks out the innovative ideas that agile new businesses can provide and in return gives them the credibility of having the government as a lead customer.

5. Alternative Finance. For those activities, which are closer to market and where business confidence is higher, there are opportunities for Innovate UK to enable commercial finance to be brought in much earlier. This in turn would allow Innovate UK itself to be more efficient in the use of its own investments.

For a step change in productivity, we need a step change in innovation.

@KevinBaughan



[i] Fixing the foundations: Creating a more prosperous nation https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443898/Productivity_Plan_web.pdf

[ii] RCUK event: Research, Innovate, Grow  http://www.rcuk.ac.uk/rig/

[iii] Our plan for growth: science and innovation  https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387780/PU1719_HMT_Science_.pdf

[iv] Public research and innovation expenditure  https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437447/bis-15-350-Public-expenditure-on-research-and-innovation-2013-14.pdf

Questions and Answers

I have had the pleasure of being in post at Innovate UK now for a little over ten months and so it is a good moment to reflect on both the key lessons learnt and the opportunities ahead. Particularly as in May, Innovate UK will have a new CEO, Dr Ruth McKernan, and the United Kingdom will have a new Government.

Innovate UK asks itself 4 key questions before it invests in new opportunities:
1) what is the size of the global market associated with the opportunity;
2) what are the strengths which will allow the UK to lead in this market;
3) why now, is the timing right; and
4) why does it require public money?

Simple but penetrating questions, which I have learnt to value.

Markets lie at the heart of every journey from concept to commercialisation and it is the new global markets of the future, which are targeted by the significant investments made through our Challenge programme across a wide array of priority areas – from energy to enabling technologies, from health+care to space, from high value manufacturing to agriculture & food.

By understanding the UK’s strengths in addressing these market opportunities, we can strive to ensure that investments made through our programme, lead to economic growth in the UK. Those strengths may come from our world-class research base, as they do in the case of cell therapies and regenerative medicine; or from combining existing strengths in new ways as they would in areas like smart infrastructure; or they may reflect a shared ambition spanning research, industry and Government, as with our programmes on low impact buildings.

Many of us have experienced working on new technologies ahead of their time. Timing is important and therefore we may start a new area with feasibility study competitions in order to understand the quantity of high quality ideas, which are out there. Finally, there is the key question of why public money? If there is such a strong market opportunity and it is ready to be addressed by UK strengths, why does it need any public sector investment at all – wouldn’t the investment simply be what the economists call a deadweight loss?

Some people like to talk about the barriers to innovation and the investment of public money to overcome them. I prefer to think about the steps Innovate UK needs to take in order to build clarity and consensus - so that we can “crowd in” private sector investment. It also follows from this, that Innovate UK needs to be just as good at stepping back when private sector investment is accelerating, as it is at stepping forward to trigger that investment in the first place.

So what of the opportunities ahead? What are the steps we need to take in order to lift the activities of Innovate UK to the next level? The 2x2 grid in my last blog provides a useful framework with which to explore the answers, ensuring that Innovate UK has a balanced approach to its investment opportunities.

If we start in the top left we are thinking about the revolutionary opportunities created by technology push. This isn’t an easy path to commercialisation, as it will often require completely new business models and ecosystems. However, the breakthroughs when they do occur are often dramatic. It’s an area where our world-class research base gives the UK a structural advantage and is recognised in Government policy through the 8 Great Technologies.  Our partnership with the Research Councils, has allowed us to build up a good momentum in this quadrant, for example through joint innovation centres with EPSRC & BBSRC and very early stage collaborations, as being pioneered in Quantum Technologies.

Moving to top right, we have the evolutionary opportunities from technology pull. This isn’t about incremental innovation where the business case is already clear. It’s about transforming industries and businesses to address the new challenges of the future where the UK can take a leadership position. That might be through bringing together existing capabilities such as with construction and digital or through focusing on opportunities created by resource efficiency and the circular economy. Alternatively, it might be through supporting other organisations in the delivery of industrial strategies, as we do in Aerospace and Agritech.

Bottom right is societal pull, a source of great opportunities for Innovate UK. Societal trends can act as a very powerful proxy for the shape of future markets and when Government, research and industry are all aligned, there is a very real opportunity for the UK to take a leadership role. It is particularly relevant to the priority areas that dominate all of our lives, such as transport and health+care. Societal challenges have been the motivation for some of our most successful programmes, such as in our programmes to develop low carbon vehicles.

Last but certainly not least is societal push.  For me, the opportunity here is captured in the phrase “redefining needs and desires”. If you can do that, the commercial opportunity is vast – you only have to look at Apple’s recent world record profits. Our work with the creative industries is impressive, whether it’s with leaders in visual effects such as Imaginarium and Double Negative or start ups nurtured through IC tomorrow and our digital & creative launchpads.

So, if you want game changing answers, ask the right game changing questions.

Great Expectations

Great Expectations

It was February 8th 2007, when I first discovered the power of a brand. It was the day when the merged UK Cable TV industry rebranded as Virgin Media with Richard Branson hosting the launch from a see-through Cube in the middle of a snowy Covent Garden. Immediately following the rebranding the number of customer complaints leapt higher, not because the service had suddenly deteriorated but because customers now expected much more of a “Virgin” company. To my surprise, only two people joined the senior team to effect the transition to Virgin Media (Ashley Stockwell and James Kydd). It didn’t need an army to effect a culture change, everyone understood the promise of the Virgin brand and you had no choice but to live up to the expectations it created.

Last autumn the Technology Strategy Board rebranded as Innovate UK. Once again I felt an immediate impact from this new brand. It didn’t come with its own existing momentum but its simple, elegant and powerful message spelt out a promise that everyone could understand: Innovate UK was here to make change happen; to challenge the status quo; to transform the UK.

The new brand came to life for me at Innovate UK 2014 - our joint event with UKTI, which puts the global spotlight on innovation in the UK. I had the pleasure of chairing the final afternoon. The line up spoke volumes to the great expectations that would be inherent in our new brand’s promise. George Freeman, in his ground breaking role as the world’s first Minister for Life Sciences focused on how the UK bio economy needed to take on the global human challenges around food, health and energy. Mariana Mazzucato, the RM Philips Professor in the Economics of Innovation, reframed the role of the state in innovation: from a passive agent which addressed market failures and then “got out of the way”, to a pro-active entrepreneurial agent taking on early stage risks in order to crowd-in private investment. The session finished with a stunning display from the Unseen, London College of Fashion and Cute Circuit on the results of mixing high tech with high fashion. It was an afternoon that really spelt out for me the vast breadth and depth that Innovate UK must now live up to.

How do you do justice to the great expectations of our new brand? In my experience, the first step in addressing an enormous challenge is to find a way to elegantly divide it up into smaller ones. And it was a discussion over lunch with Eddie Obeng that gave me a starting point. He drew a 2x2 grid, which he calls  a ‘SparqMap’, with Technology versus Human on one axis and Push versus Pull on the other. No 2x2 grid can be a complete model of a complex reality but the four quadrants that these different perspectives created gave me an insightful way to divide up the incredible scope of Innovate UK’s mission.

Technology + Push is all about Revolutionary new Capabilities- discovering new technologies and finding ways to successfully apply them to real life problems. The quadrant mirrors Innovate UK’s partnership with our research base and the journey from discovery through translation to commercialisation. It is frequently a difficult journey as disruptive new ideas will create fascinating opportunities but they will often also demand completely new business models and ecosystems to bring them to fruition.

Technology + Pull is all about Evolutionary new Capabilities – if technology push is centred on revolution, then technology pull is centred on evolution. Formulating a direction of travel, a roadmap, pulling through the technology required to satisfy the needs of an industry. This quadrant mirrors Innovate UK’s work with industry sectors, many of which now have their own innovation centres and institutes such as the Automotive Propulsion Centre and the Aerospace Technology Institute. This is a natural outcome in a Technology Pull quadrant where the direction of travel is better understood. However established industries must resist the temptation to focus solely on technology evolution - leaving them blind to the competitive risks and opportunities created by the other three quadrants.

Human + Pull is all about Societal Challenges and Consumer Insights. This is another very familiar quadrant to Innovate UK, which has frequently used grand challenges in order to stimulate business-led innovation - such as our programmes on low carbon vehicles or low impact buildings. In one of Eddie’s diagrams, he used the word “Insight” to capture the essence of this quadrant and that neatly adds the opportunity for Big Data to now capture the human pull of consumers, complementing the human pull generated by our citizens and policy makers focused on the challenges facing society.

Human + Push is all about Fashion and the Creative Industries. This final quadrant in Eddie’s SparqMap made me smile as the team who look after this area in Innovate UK have been pushing for much greater prominence and this framework gives them their very own quadrant. Indeed, the UK not only excels at the disruptive research skills required in “technology push”, but it also excels at the disruptive creativity which underpins the “human push” that can so completely redefine our desires and needs as consumers. As I noted earlier, a simple 2x2 grid is always going to be a crude approximation of our reality but an elegant one encourages you to not only look at what you are currently doing from a fresh perspective but requires you to think about those things you are not doing.

So as we start 2015 as Innovate UK, I am confident that we have a mind-set with which we can rise to the challenge of our new brand’s promise and meet the expectations of our innovation partners whether they are in research, business, government or the creative industries. Lets get to it.

Kevin Baughan
@KevinBaughan

To see videos from Innovate UK 2014: http://innovateuk2014.policyreview.tv/conference/993.html

To find out more from Eddie at http://ImagineAFish.com   Download the free e-book “Who killed the Sparq” from http://Pentacle.co.uk/WKS_FreeDownload.htm

Building Clarity and Consensus

There is something inherently powerful and compelling in the potential of regenerative medicine. Using the processes already present within human biology to replicate or regenerate cells,  tissues or organs, offers society a wealth of new possibilities for treating and curing diseases. It is an approach to medicine which often feels both highly transformative and yet at the same time reassuringly intuitive.  Finding such winning combinations in new technologies is always appealing, as it points not only towards the potential for a true step change in outcomes but also towards widespread  acceptance and therefore a smoother path towards achieving large scale take up and adoption.

As the UK’s innovation agency, it is our role to accelerate economic growth by connecting, funding and supporting business-led opportunities created through new technology. In my group’s portfolio of targeted innovation programmes, we see opportunities which have been created by exciting scientific breakthroughs from our world class UK research base. We see opportunities which have resulted from bringing together existing UK capabilities and strengths in order to tackle completely new problems or to create completely new ways of addressing existing ones.  Society also faces a number of fundamental challenges and as a result we see opportunities in areas such as health, transportation and energy.  At Innovate UK, we are often at our best when all three of these combine in one programme, as they do in the case of regenerative medicine and cell therapies. An exciting domain where world leading scientific breakthroughs from our universities combine with our core strengths in high value manufacturing, tissue engineering, biomaterials, cell therapy, gene therapy and chemical biology in order to meet the long term challenges we face in our health care services which are urgently seeking to improve both their effectiveness and efficiency.

Businesses will typically look for clarity and consensus before investing. They want to know that they can execute on their plans robustly and successfully before they start.  I see the role of my team at Innovate UK as working to progressively build confidence in the areas which are addressed by our portfolio of targeted innovation programmes. It’s a journey that will often see us progressing concepts from research into translation and then from translation into commercialisation before they can eventually become business as usual. At the start of the journey, during the research and translation phases, when there are very high levels of uncertainty and multiple competing perspectives, it often falls to the leadership and judgement of key individuals within the sector in order to build momentum, confidence and excitement around the potential of an opportunity. As the journey moves through commercialisation and eventually into becoming business as usual, it will become progressively less dependent on the thought leadership of individuals and instead become increasingly dominated by the financial and operational processes demanded by sound business practice. For the last seven years, Innovate UK has been focused on improving the journey of UK innovators from concept to commercialisation and in the specific case of regenerative medicine and cell therapies, we are proud to have been able to play a part in building the UK’s leadership position.

I had the opportunity a few weeks ago, to meet up with Gregg Sando and Karin Hodgkin of Cell Medica at their canal-side facility in Camden. Their experience in working with Innovate UK on the journey from concept to commercialisation is a great example of how we can use our targeted innovation programmes to connect, fund and support ambitious businesses.  It started with the submission by Cell Medica of two grant applications at the same time, one of which was accepted and the other rejected. It is a reminder that not every proposal will be considered robust enough to progress from one phase to the next. Indeed, in the absence of clarity and consensus it is very likely that different parties will have quite different perspectives on the same proposal. Our own competition-based approach, where we focus on designing the race course, rather than on picking the winners, has served us well.  In the case of Cell Medica it allowed them through their first successful grant application, to proceed with confidence in developing a new low-cost manufacturing method. They then subsequently won two further grants: one to establish a collaboration agreement with Great Ormand Street Hospital and University College London and one to then take into clinical trials at GOSH, a cell therapy treatment which would stimulate the body’s own immune system to tackle life-threatening infections following bone marrow transplants. The grants Cell Medica received from Innovate UK came from programmes covering high value manufacturing as well as from regenerative medicine & cell therapy, highlighting the benefits of allowing each of our targeted innovation areas to draw on expertise from right across our multi-disciplinary team. So if you want to put satellite expertise together with agri-tech or data-analytics expertise together with construction we have the ability to do it. Cell Medica has flourished now into a global company which has subsequently attracted substantial additional investment in order to focus on a multi-billion pound market. It has been able to develop strengths in commercial manufacturing, regulatory approvals as well as in reimbursement, marketing and distribution. Strengths which have in turn allowed them to build clarity and consensus around the business models they are pursuing.

More recently, I met up with Keith Thompson and Matthew Durdy at the newly opened Cell Therapy Catapult on the 12th floor of Guy’s Hospital. While Cell Medica is a great example of how we can work in partnership with a single business, the Cell Therapy Catapult is a superb example of how we can work to energise an entire sector. Its vision is centred on establishing the UK as a global leader in the development, delivery and commercialisation of cell therapy. It sees itself as a facility where businesses can start, grow and confidently develop cell therapies which are in turn delivered to patients rapidly, efficiently and effectively. It received a major boost earlier in the year when it was also awarded a further £55m in order to establish a large-scale cell therapy manufacturing centre in the UK.  Since 2011, Innovate UK has established seven Catapults and in 2015 we will launch two further Catapults; one in precision medicine and one in energy systems. These leading edge innovation centres act as a focal point to bring under one roof the very best domain expertise from academia, business and engineering together with critical assets (both digital and physical) in order  to allow an entire sector to work together to establish clarity and consensus in their direction of travel. 

@KevinBaughan

Quests, Movies & Fog

When you join somewhere new, it is always reassuring to discover you have friends in common. Two weeks ago, I took over the reins from David Bott as the new Director for Technology & Innovation. One of the many friends that I found I had in common with the Technology Strategy Board was Prof Eddie Obeng – founder of Pentacle the Virtual Business School. If you have ever met Eddie, you will not have forgotten the experience as he has such incredible energy. I had discovered Eddie, when I was searching for a fresh approach to R&D leadership and Eddie had a really neat answer which has stayed with me ever since. Leadership is actually about “followership” and the reasons people rise up and follow you are highly dependent on the context of what you are about to do.

Eddie placed leadership opportunities into one of four groups, depending on a) whether you have experience or not in what you are going to do and b) whether you understand or not how it is you are going to do it. So if you have a moment to spare, lets apply this thinking to the activities of the Technology Strategy Board and if you would like to learn much more, you will need to get a copy of Eddie’s book - All Change!: The Project Leader's Secret Handbook.

Business As Usual: Let’s get this one out of the way first and then we will be free to head off on quests; start making movies and take walks into the fog. If you have experience in what you are going to do and you understand how you are going to do it - its business as usual. Eddie actually called this painting by numbers but I think it deserves a more respectful title as it is through “business as usual” that the cash arrives which meets the monthly pay roll. We shall move on though, as it is not a quadrant in Eddie’s model that the Technology Strategy Board should be in.

Going on a quest. You know what it is you are going to do but you have very little understanding of how you are going to achieve it. So whether it is in pioneering offshore renewable energy or trail blazing cell therapies, the really interesting question is why would businesses follow us on these quests? Eddie suggests the leader “must give life to the already seductive idea … must be able to articulate the cause and make you believe that, more than anything else you also want this challenge to be met and overcome”. In return the leader offers you “adventure, discovery … and at the end, an outcome such as mankind has never seen before”.

Making a movie. You understand how you are going to achieve it but you have no experience in this particular project of what you are going to do. Our work in building competency in the connected digital economy is a good example. So why would businesses sign up to making a movie with us? Eddie argues, we must take on the role of the film director, be able to marshal a group of skilled technicians and stars into a single cohesive team. Each team member is an expert in their field but without direction they cannot achieve their common goal. Business will therefore follow us because of their belief that “the leader will be able to pull together the unrelated strands into a cohesive and meaningful whole … you follow because you are able to demonstrate your skills to the full”.

A walk in the Fog. You do not really know what it is exactly you are going to do and you have very little understanding of how you are going to do it. These are activities which are much more likely to be associated with our work in emerging technologies, for example quantum computing or synthetic biology. So why would businesses follow us into the fog? Eddie suggests: we must persuade potential followers that they are better off following us into the fog than wandering in on their own. Eddie proposes that the leader must have a clear vision; “a picture of a possible future … that conjures up reactions in you which are both logical and emotional”. You follow because the leader “offers you the opportunity to stretch yourself into areas you have never been”.

So as I start this new job, I look forward to the Technology Strategy Board persuading ever increasing numbers of UK businesses to follow us on quests, sign up with us to make movies and on occasions even join us for a walk into the fog.

Kevin
@KevinBaughan
 

More of Eddie: http://www.ted.com/talks/eddie_obeng_smart_failure_for_a_fast_changing_world

 

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