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March 2008

Northwest Regional Innovation PolicyDraft for Consultation

NW Reg innov policy cover:Statement 7/3/08 15:14 Page 1

NORTHWEST REGIONAL INNOVATION POLICY

Contents

Contents .............................................................................. 1 Executive Summary.............................................................. 2 1 Purpose of the Policy .................................................................. 3

1.1 Why do we need Innovation .......................................... 3 1.2 Aims of the Policy ........................................................ 5

2 Policy and Context .................................................................... 5 2.1 What is Innovation ....................................................... 5 2.2 Open Innovation .......................................................... 7 2.3 Spatial Influences on Innovation .................................... 8 2.4 Innovation in Services .................................................. 9 2.5 Innovation Measures .................................................. 10

3 Evidence Base...................................................................... 11 3.1 Where are we now?.................................................... 11 3.2 Northwest England ..................................................... 11 3.3 Regional Economic Strategy ........................................ 12 3.4 Skills Linkages........................................................... 13 3.5 Knowledge Exchange.................................................. 14 3.6 UK Innovation Survey................................................. 15 3.7 European comparisons................................................ 16 3.8 Sainsbury Review & CSR 2007 ..................................... 17

4 The Policy........................................................................... 19 4.1 Where do we want to be?............................................ 19 4.2 Northwest Priorities .................................................... 22 4.3 What are the gaps? .................................................... 23

5 Actions ............................................................................. 26 6 Measures of Success................................................................ 28 7 Implementation and Review........................................................ 29 8 Appendix 1......................................................................... 30

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Executive Summary

Innovation can be described as “…the successful creation, absorption and exploitation of new ideas in the economic and social arenas…” Encouraging innovation is part of the DIUS and DBERR mission for business success and to help the UK adjust to globalisation. As a direct reflection of the Lisbon Strategy, it is at the heart of policy towards increasing competitiveness and productivity in the UK.

The UK innovation performance is around the average of other advanced economies and the EU innovation scoreboard classifies the UK as an ‘innovation follower’. The Northwest regional innovation scoreboard rating is slightly below that of the UK as a whole.

Innovation needs to be considered on a wider basis than the conventional science and technology or product concepts. The European Commission discuss a broad based innovation strategy for Europe that translates investments in knowledge into products and services.

The key elements of a successful innovative economy focus around three core activities – Innovation Capacity; Innovation Collaboration; and Innovation Investment. The activity of Innovation (as a cross-cutting theme) should be a process which engages skills, sources of knowledge, business, market structures and consumers in an open exchange which increases competitiveness/ productivity and improves quality of life for all.

Innovation activity can be considered to be below the socially optimum level as a result of individuals and firms not capturing the full extent of their investment. Additionally, small firms in particular struggle to access all relevant information sources and may need to collaborate on development. These issues can result in the firms not investing to the extent they could when the demonstrated returns from their investment cannot be achieved.

Improving the overall levels of innovation in the Northwest dictates reducing these barriers through raising the awareness of wider benefits of innovation, increasing the access to and exploitation of knowledge, and also increasing the motivation and capacity throughout the regions businesses.

Innovation activity in the RES identified science sectors should build on the Northwest Science Strategy and the strong innovation activities which already exist. For the non-science dominated sectors, there needs to be a much greater understanding of the innovation processes and outputs. Technology and science do feature in these sectors and can be the tool with which the innovation is enabled eg. Internet in banking, or additives in food processing.

To deliver these outcomes requires a coordinated programme of activities which builds on the interdependencies of skills, collaboration and investment.


1 Purpose of the Policy

1.1 Why do we need Innovation


he economy is moving from traditional bases towards more knowledge driven service activity and the demands on employee productivity are increasing.

• £14.3Bn or 80% of the GVA gap between the NW and the UK average is put down to lower productivity1.

T• Over 40% of businesses in the Northwest do not innovate2.

• Competition from ‘emerging economies’ has led to businesses seeking returns from ‘higher value add’ activities.

• The level of productivity in manufacturing and services must increase to participate effectively.

• The demand for higher level skills is increasing to compete in this ‘new economy’.

• The Northwest requires a further 80,000 graduates in the workforce to reach the average for England.

The challenge is to create an environment which attracts and retains the highest quality candidates targeted at the sectors in which the UK and specifically the Northwest can have true global impact.

The creation and growth of new businesses contribute to the beneficial process of ‘productive churn’ where new entrants replace less efficient existing businesses thus raising the overall level of productivity. New businesses can raise the level of competition within markets through the introduction of new innovative ideas and products.

New businesses also complement existing businesses by introducing new ideas and practices, potentially increasing the innovation performance of other businesses. This ‘productive churn’ may have accounted for between 20 and 40 per cent of labour productivity growth over a five year period3.

The Northwest business start-up rate is 18% below the national average and this is a gap of 38,000 fewer businesses than the average regional business density.

The UK Government (DIUS/DBERR) has identified innovation as one of the five drivers for improving productivity. While many small businesses may have limited growth ambitions too few grow fast enough, or are competitive enough, to contribute as fully as they might to overall productivity levels. Evidence does suggest that small businesses are

1 Northwest Economic Baseline update report. NWDA RIU, June 2007 2 DTI occasional paper 6, innovation in the UK: indicators and insights, July 2006 3 OECD working paper 329. The role of policy & institutions for productivity & firm dynamics, Scarpetta et al, 2002

involved in innovation although there are barriers that deter many from becoming innovators.

These barriers lead to sub-optimal investment in innovation and skills development, particularly higher order management skills, and discourage the adoption of commercial best practice.

The UK innovation performance is around the average of other advanced economies4 and the EU innovation scoreboard classifies the UK as an ‘innovation follower’. This shows the requirement and potential for improved innovation performance and higher levels of productivity.

Investment in Research and Development is often cited as an ‘innovation input’ and is used as a proxy measure for innovation performance. The headline data for business R&D spend places the Northwest in the top tier of UK regions. However, this is dominated by large businesses in a few specialised sectors and leaves a long tail of smaller businesses with inadequate investment in innovation.

A study5 identified a range of constraints to small business innovation and the most significant barriers they cite are:

• lack of appropriate sources of finance (approximately 28 per cent);

• innovation costs are too high (approximately 30 per cent); and

• the pay-off period too long (approximately 28 per cent).

Overall, businesses with more than 50 employees generally experience barriers to innovation less severely than those with fewer than 50 employees.

In addition, small businesses may fail to secure the returns to innovation because they lack the skills needed to commercialise innovative products or services.

The significance of key skills, particularly management skills, to small business growth is highlighted in a number of studies and a lack of appropriately skilled workers may be holding back investment, innovation and productivity. The UK lags behind the US in terms of high level skills and below key European competitors in terms of intermediate level skills.

As the UK economy moves away from traditional manufacturing to a higher value add, knowledge based economy this drives the need to generate further capacity within business to absorb, develop and exploit new ideas. The demand for occupations that require higher skills levels are now growing faster than others.

There are obvious synergies between enterprise and innovation. At its simplest level ‘being enterprising’ and ‘being innovative’ is purely a state of mind around creativity. As the concept develops we need an entrepreneurial approach to take the invention (the idea) and convert it to innovation (deliverable increase in GVA or performance) through the application of enterprise (a new business or business model). The

4 Competing in the Global Economy: the innovation challenge, DTI 2003 5 Cosh and Hughes (2003)


capacity to successfully deliver this depends on the availability of particular skills and resources.

The Northwest has ‘pockets’ where the necessary ingredients for innovation (skills, investment, ideas and routes to market) are already present. However, there are also significant areas which are marked by the absence of one or all of these ingredients. The challenge is twofold – to introduce or provide access to these ingredients where they are not present and then to harness these ingredients in a cohesive manner to deliver real improvements in productivity and growth through successful innovation.

1.2 Aims of the Policy

This policy has the following objectives:

• To position innovation within the context of the Northwest economy and its importance is respect of productivity.

• Provide a framework to support increased innovation activities.

• To raise the awareness of innovation in the region.

• To raise the level of understanding of innovation in services.

• To understand and improve the connectivity between innovation, skills capacity, enterprise and investment.

2 Policy and Context

2.1 What is Innovation

nnovation may be perceived as “how do I do things differently in order to solve a problem?” However, this might imply that there needs to be a problem before innovation can happen – this is not necessarily the

case – innovation should be perceived as an opportunity, the ability or foresight to solve a problem you didn’t know you had.

IInnovation is looking at the same thing in new ways.

There is more to innovation than science and technology …6

There is more to innovation than improving efficiency …

Innovation can be described as “…the successful creation, absorption and exploitation of new ideas in the economic and social arenas…”. The economic benefit of innovation is captured through businesses embracing innovation as the foundation of their ethos - in the widest context of products and processes. In the social sectors innovation objectives may be the delivery of improved performance, efficiencies or access to services. Hence, enterprise must form a core theme for innovation and

6 Definition of R&D in the OECD Frascati Manual – “any project to resolve ‘scientific or technological’ uncertainty”.


innovation policy must have its ultimate effect on enterprises, their capability and operating environment.

As access to knowledge continues to increase at a phenomenal rate so the traditional concepts of innovation fall away. It is no longer the premise of R&D departments, nor the science laboratory.

Innovation knows no boundaries – either national or market sector. Indeed the greatest innovations may come about at the borders of traditional markets through the collaboration of knowledge workers in remote locations who integrate ideas from differing disciplines.

Innovation

• … is more than science & technology.

• … is the successful exploitation of new ideas.

• … knows no boundaries. • … is key to productivity.

The forces of global competition are driving nations, regions and business to aspire to even greater levels of innovation and productivity. The challenges faced by individual businesses are becoming more complex and the responses are a diverse mix of product, process and organisational evolution. Here the emphasis is on the desire and capacity to access and utilise new knowledge to produce innovative solutions.

The knowledge required to innovate may be loosely categorised as either ‘new to the world’ or only ‘new to the business’. This latter category stresses the importance of connectivity to the ‘knowledge base’ and the diffusion of that knowledge into new concepts. The search for appropriate knowledge should not be limited to educational establishments – the required knowledge is mostly found with suppliers, peers and customers.

The European Council (EC) set a target of the EU becoming the most competitive and dynamic knowledge driven economy by 2010. Interim reports have stressed that much remains to be done, particularly in the area of knowledge and innovation. An outcome of this is the Lisbon Strategy for Growth and Jobs7 where innovation is one of three mains areas for action.

The European Commission estimates that differences in innovative performance account for over 40% of regional variation in per capita income.

Although these policies and goals can be set at the EU level the delivery of innovation policy takes place mostly at the national and regional levels.

Encouraging innovation is part of the DIUS mission to create the conditions for business success and help the UK adjust to globalisation. As a direct reflection of the Lisbon Strategy, it is at the heart of policy towards increasing competitiveness and productivity in the UK.

It is widely recognised that innovation is a key driver of productivity8 and innovation is said to account for around 80% of productivity growth in advanced countries. It is also widely recognised that, by international

7 “Working together for growth and jobs: A new start for the Lisbon Strategy” (COM(2005)24 final) 8 Productivity in the UK: The evidence and the Government’s approach, HMT (2000).


comparison, the levels of productivity and innovation in the UK must be improved9. The UK has made progress in narrowing the gap in recent years and committed to significant investment in science and innovation however, challenges remain if we are to capitalise on the impressive knowledge base.

2.2 Open Innovation The original ‘process model’ of innovation in which traditional R&D features as the primary source of knowledge is being replaced with a more ‘systemic’ or ‘open model’10 in which knowledge exchange can occur with a range of partners (Higher Education Institutions, customers, supply chain etc.) at regional, national and international levels.

A recent CBI study11 showed government research establishments and Universities as the least effective forms of collaboration for innovation. This may be down to differing expectations from the exchange however both parties recognise that there are benefits to be had from the collaboration. The Higher Education Innovation Fund (HEIF) has encouraged and supported knowledge transfer from universities to business. Enterprise education is increasingly a part of the curriculum for 14-16 year olds however, there is recognition that currently new graduates lack the skills for innovation in business.

The system-based approach to innovation emphasises learning and diffusion as central to the performance of the innovation system12.

In this model, innovation activities are wide-ranging, involving many different activities, and many different participants. The interactions between the participants and activities are multidirectional and operate at many levels. This places significant emphasis on the diffusion of knowledge throughout the ‘system’.

Open innovation is the collaboration of people and organisations across traditional boundaries. The open sharing and exchange of knowledge rather than relying only on knowledge created internally provides much greater scope for innovation. This ‘open innovation’ may be limited to the consenting partners by licensing or other strategic agreements.

Global companies are engaging in open innovation rather than solely on in-house research and development. Procter & Gamble (P&G) employs about 7,000 people in its R&D units but globally there are around 1.5 million scientists with expertise in P&G’s areas of interest.

This can then ask the question “How much Open Innovation is too much?” At what point does the corporation perceive that the retained benefits of a collaborative approach are outweighed by the investment costs? From a

9 Productivity in the UK 6: Progress and new evidence, HMT March 2006. 10 Chesbrough, H. (2003), "Open Innovation: The New Imperative for Creating and Profiting from Technology", Harvard Business School Press. 11 CBI/ Qintetiq Innovation Survey, 2005 12 Robin Cowan and Gert van de Paal, Innovation Policy in a Knowledge-Based Economy, June 2000, European Commission.


public investment perspective these ‘spillover (or wider social) effects’ can result in greater diffusion and be beneficial to the economy as a whole.

Open Innovation

• … is collaborative. • … is a ‘contact sport’. • … thrives through

proximity & density.

There are further issues in defining the role of SMEs in this process and capturing methods for how they can engage? A monopoly (or dominant) position for a large firm in a market can lead to hoarding of Intellectual Property (IP), even if the IP is not core to the firm and this can also reduce the involvement of SMEs. This concept, whilst an issue, may also present an opportunity where SMEs can be vehicles to experiment with new business models for exploitation of non-core IP for large companies.

2.3 Spatial Influences on Innovation The diffusion of tacit knowledge13 is more difficult than codified knowledge and hence usually requires more face to face contact. Multiple sources of knowledge creation, the access to that knowledge and the subsequent diffusion of that knowledge is a complex interactive process and requires significant capacity from participants. This is often referred to as ‘absorptive capacity’ and is a key element in innovation processes and can be a tangible barrier in small and medium sized enterprises.

The collaboration and knowledge exchange aspects of open innovation require greater mobility of employees and a broad range of skills which means we need to engender ‘life long learning’ as a philosophy – one set of learning at the start of a career is no longer sufficient.

City regions play an increasingly important part in the innovation system. As an indicator of certain aspects of innovation activity, urban areas accounted for over 67% of patent applications between 1999 and 200114. In larger cities, the density of firms, services and the knowledge base in close proximity to large labour pools and consumer market allows (and encourages) a diversity of choice and a much greater level of interaction and diffusion between the participants in the innovation process. This has supported cluster and science park thinking and has led to the concept of City Regions as potential drivers of innovation and how they appear as ‘spikes’ on the spatial innovation landscape.

Businesses and high calibre individuals are attracted to this wealth of knowledge and activity by the opportunity to engage and benefit from the depth and diversity available in these urban locations.

Nevertheless, not all innovation occurs in city or urban areas but rural areas do lack this density of activity and require greater effort to overcome the physical barriers to collaboration. Additionally, some aspects of geography or infrastructure effectively isolate fairly large population centres from this density of labour, market and support assets.

13 ‘Tacit knowledge’ is described at that knowledge which is embodied in ‘know how’ rather than the ‘know what’ which can be described or codified in a more formal manner eg. Patents, copyright, designs etc. 14 State of the Cities Database, DCLG


Digital media and the penetration of broadband are helping to link innovation in rural areas with the urban assets. However, challenges in the transfer of tacit knowledge remain to be addressed.

There are increasing drivers for innovation from a growing demand for improvements in quality of life. The quest for healthier food and activities is the traditional base for rural industries. There is an increasing trend of population movement out of cities and this may bring valuable innovation and social capacity to more rural areas.

2.4 Innovation in Services Innovation needs to be considered on a wider basis than the conventional science and technology or product concepts. The European Commission discuss a broad based innovation strategy for Europe that translates investments in knowledge into products and services15.

The service sector accounts for around 75% of UK output and business services in particular have doubled their share of GDP in the past two decades16. In the Northwest, the business services sector was the largest employment growth sector in the period 1999 to 2003 (+16%)17.

Three of the priority sectors in the Northwest RES have substantial elements of service based activity food and drink digital and creative industries business and professional services.

However, relative productivity is below the England average in most service sectors and business services accounts for around 40% of the overall productivity gap18. The differences in productivity within this sector may be driven by the composition of the activity and the nature of operations – ‘back office processing’ vs higher value added activity.

At a national level, productivity gaps (GVA) between service and traditional product-based sectors have been identified – Financial Intermediation and Business Services account for 30% of the UK’s productivity gap with the USA19.

It is appropriate to include two comments on the subject of defining services particularly in the context of innovation.

“No criteria are likely to provide a clear cut distinction between goods and services”20

“…..there is no such thing as service industries. There are only industries whose service components

15 "Putting knowledge into practice: A broad based innovation strategy for the EU", Brussels COM(2006) 502 final. 16 DTI economics paper 16; Business services and globalisation. January 2007 17 RES topic paper 13; employment growth in the northwest. Regeneris, July 2005. 18 RES topic paper; the role of industrial structure in the northwest’s productivity. Regeneris, July 2005. 19 AIM Research, 2003, Rachel Griffiths et Al. 20 A. D. Smith “The measurement and interpretation of service output changes”


are greater or less than those of other industries. Everybody is in service.”21

From the market perspective, firms are generally quick to recognise and react to trends, new legislation etc. These changes are often not recognised as innovations and are not captured by existing metrics. Is this an indication that these sectors are responding to the challenges faced and are, in fact, innovative?

It is important not to consider the range of service industries in the Northwest as a 'generic sector'. There needs to be greater understanding of the drivers and outputs of innovation in this diverse grouping.

One problem with innovations in services is that they are usually very easy to copy and in many cases innovative firms know that they only have a short window to generate a return from a new product before it effectively becomes a commodity activity which is offered by all competitors.

An important element for innovation in services is the ability to access knowledge and apply it in short timescales. This ‘innovation without research’ is a key driver for the high performance of ‘new’ European countries in the SSII2006 data22 where they have not performed well on more traditional innovation scoreboards which emphasise R&D, patenting and time for product development.

2.5 Innovation Measures Do the traditional measures of innovation (R&D investment, patent registration) capture the intensity of innovation taking place in these service sectors? Close to 30% of engineering based manufacturers use patents to protect their intellectual property, fewer than 20% of companies in knowledge intensive services use the same tool23.

Much service innovation is linked to the business model or to activities which assist productivity in other sectors. It is often the application of technical or product innovation in the delivery of the service eg. ICT. It is arguable that certain aspects of scientific and technological invention can only be effectively delivered to the end user as innovation through some accompanying organisational or business model changes.

The indicators used in the Community Innovation Surveys to measure regional/ national innovation performance are centred around the traditional aspects of spend on R&D, patents registered, new products introduced. There is much less emphasis placed on the skills of employees or access/ usage of knowledge.

Much existing policy and metrics have focused on the perceived inputs to innovation and indirect drivers for the innovation processes. Many of these metrics account for ‘invention’ but not ‘innovation’ and have a basis

21 Theodore Leavitt 22 “Can we measure and compare innovation in services?”, Trendchart report, June 2006. 23 “The Race to the Top”, Lord Sainsbury Review, October 2007


in science and technology. Even with these limited measures there is greater difficulty assigning them at the regional or sub-regional level.

It is possible that certain aspects of innovation in the service industries are ‘hidden’ from existing metrics and there is a need for a broader understanding of the sources of innovation and the skills required to absorb and apply this innovation24.

Productivity performance reported at a national level may be understating the full impact of UK business engagement in the knowledge economy. When intangible investments in skills, innovation and intellectual property are included in productivity measures the UK shows marked improvement rather than flat performance over the last few decades25.

These ‘intangible factors’ are not currently employed and although inclusion may show productivity growth in the UK the identified gaps between the UK and the USA, Japan, Germany etc. are likely to remain.

3 Evidence Base

3.1 Where are we now?

nnovation is vital to increasing competitiveness and improving the economy, it can also help us to meet some of the most challenging issues we face such as climate change and pollution.

In 2005/06, the English Regional Development Agencies invested nearly £325M in science and innovation and this figure is set to increase to approximately £418M by 2007/0826.

I

3.2 Northwest England The Northwest of England has over 6.8m people, 11.4% of the UK’s population, in an area of 14,106 km2, containing over 242,00027 businesses all contributing to a GVA of £106Bn in 200528. The region saw GVA growth of 3.7% in 2005 compared with 3.9% in the UK, although GVA per head growth was slightly ahead of the overall UK figure.

The overall Northwest economy is ranked third in the UK (after London and the South East) however, it is ranked 8th in terms of GVA per head which has remained at 88% of the UK average for the past 3 years.

The last 40 years has seen the Northwest build on its traditional strengths in chemicals, textiles, shipping and engineering and diversify into modern high technology sectors including ICT, biotechnology, pharmaceuticals, aerospace, and telecommunications. Manufacturing has remained at the 24 The innovation Gap, Nesta report, October 2006 25 ‘What can management do to enhance productivity & performance?’, Professor J Haskel, ESRC/AIM 26 http://www.dius.gov.uk/policy/innovation.html (December 2007) 27 NOMIS ABI, workplace analysis, 2005 28 ONS Regional Accounts, December 2006


http://www.dius.gov.uk/policy/innovation.html


forefront of the Northwest economy despite increasing pressures from globalisation and the region retains its position (in GVA terms) as lead UK manufacturing region.

Manufacturing has declined from 31% of the Northwest’s GVA in 1989 to 17.8% in 2004. In the same year, renting, real estate & business services was the largest contributor to Northwest GVA accounting for £22.3Bn (21.1%)29 and was also the fastest growing in absolute terms. Over the period 1999 – 2004, the next largest growth sectors were financial intermediation and wholesale & retail. Private services contributed 51% of Northwest GVA whilst public services accounted for 18.7% - a total of nearly 70% of GVA from service industries.

Regional GVA estimates are calculated according to the income approach and compensation of employees is the largest component (60%) of regional GVA.

Sector contributors to NW GVA

17.8%

1.3%

6.2%

12.9%

3.1%7.6%5.9%

21.1%

4.6%

6.3%

4.6%0.0%0.1%

7.8%

0.7%Agriculture

M ining and quarrying o

Other mining and quarrying

M anufacturing

Utilities

Construction

Wholesale and retail trade

Hotels and restaurants

Transport

Financial intermediation

Real estate, renting & businessactivitiesPublic administration

Education

Health and social work

Other servicesSource ONS Regional Accounts Dec 2006

It is apparent that a significant contribution to GVA can be made from an efficient knowledge driven economy where the skill levels are high and the value added per employee is reflected in high levels of remuneration. The GVA per employed worker across all sectors in the Northwest (£33,800) is 22% below that in the wider South East30.

3.3 Regional Economic Strategy The 2006 Regional Economic Strategy (RES)31 identified that the Northwest (NW) economy has performed well in recent years but there is still much to be done. In 2005, although the GVA of the Northwest

29 NWDA RIU report, February 2007 30 Validation of the Productivity Gap between the Northwest and other Regions, Cambridge Econometrics, 2006 31 Northwest Regional Economic Strategy 2006

increased by £3.7bn this was below the average for England and this resulted in an increase in the GVA gap to £17.8bn32.

This gap is accounted for by:

• £3.5bn due to fewer people of working age and fewer people working.

• £14.3bn due to lower productivity of those people in work.

This latter ‘gap’ is due primarily to the composition of product and service industries which are undertaken in the Northwest. This requires a significant shift from low ‘value add’ activities to those which contain high ‘value add’ (see the Sainsbury Review).

The vision of the 2006 RES is to nurture a dynamic, sustainable, international economy, which competes on the basis of knowledge, advanced technology and an excellent quality of life for all. To achieve this vision for NW businesses the RES focuses on 7 key factors of which innovation is one.

As detailed earlier, innovation is a fundamental driver of productivity and hence dramatically increased levels of innovation are necessary to close the productivity gap. There is a growing number of businesses in the Northwest investing in higher value add activities eg. Financial services. However, there remains a large number where innovation in products or services is not recognised as an issue.

3.4 Skills Linkages There is an increasing ‘globalisation’ of research, development & skills – between 1995 and 2003 the world’s biggest companies have more than doubled their R&D spend outside of their home country33 and the number of students studying abroad has nearly doubled34.

At an international level there is an increasing flow of companies searching for required skills and an increasing circulation of knowledge workers.

There is a significant requirement for higher level skills in growing the knowledge economy. For levels of graduate employment, there is a gap of 80,000 between the Northwest (26.9%) and the England average (28.3%). The Leitch35 review has an ambitious target for this to increase to 40% nationally by 2020. The number of people with intermediate skills levels in the Northwest is comparable to the UK average but this is 20th out of 30 countries compared by the OECD.

More than 70% of the working age population for the year 2020 has already completed its compulsory education and hence the immediate emphasis must be on training and lifelong learning. The skills required for innovation cover the areas of creativity, collaboration and the capacity to absorb new ideas/ concepts. These ‘soft skills’ are needed to take

32 Northwest Economic Baseline update report, June 2007 33 ‘OECD Science, Technology and Industry (STI) Outlook 2006’, OECD (2006). 34 ‘Global Education Digest 2006’, Montreal: UNESCO Institute for Statistics. 35 ‘Leitch review of skills final report’ HM Treasury 2006.


leadership in innovation and to convince others to buy into the journey required.

The RES sets objectives for the region to tackle the lack of basic qualifications and to develop higher levels skills including management and enterprise activities. These extend beyond traditional subjects and the creative and cognitive skills required for invention must be nurtured at the earliest opportunity. This is more about expanding the aspirations and ambitions of individuals to engage with all aspects of learning.

There are priorities aimed at stimulating employers to invest more in workforce development which meet business needs including innovation, leadership, management and intermediate and higher level technical and professional skills. Additionally, to stimulate the behaviour, attitudes and aspirations of individuals to acquire entrepreneurial, intermediate and higher level skills where participation in the knowledge economy demands a broad range, not just science, technology, engineering and mathematics (STEM).

The skills linkages are core to innovation however the skills agenda is an increasingly crowded space and innovation should not add to the complexity. Rather the requirements for innovation should seek to influence and align existing skills activities to raise awareness of the innovation priorities.

In order to raise the rate of growth of GVA per capita in the region an increasing percentage of the population have to be encouraged to increase their ability to contribute. This is a shared responsibility between employers, individuals and Government and must be demand led. Stimulation of the demand should be matched with the availability of support and opportunities to participate from school age to life-long learning.

3.5 Knowledge Exchange Knowledge Exchange is a two way process and describes the task of exchanging appropriate information within and between organisations including the wider community, for the benefit of either (or both) to enable innovative new products, services and policies to be developed. It is a vital component of open innovation.

There are still a large number of firms within the Northwest that currently do not utilise the expertise of our knowledge economy to grow their business through either increased productivity and/or competitiveness.

It can be argued that the most effective form of exchange is based on human interaction and the majority of regional activities are aimed towards improving the frequency, effectiveness and quality of those interactions

There is a strong and thriving Higher Education sector in the Northwest and there is substantial activity to promote and exploit this expertise with the business market. The ‘impact agenda’ is a growing priority for the Universities as signified by the rapid rise in the number and breadth of knowledge transfer/ business engagement offices in the region.


In parallel with the increasing investments in research, there needs to be an effective two way link between the knowledge creation and the market to ensure that good research becomes good business. The Region’s long term competitiveness demands increased productivity, invention, innovation and exploitation of the research base.

The Warry Report36 said that “… the output of highly educated people rather than research results is widely regarded as the most effective knowledge transfer mechanism”.

The region needs to ensure that it’s highly educated people, stay within the region and pass on their knowledge to regional businesses to increase productivity and competitive advantage. This is an extremely broad problem which requires balancing supply and demand for skilled employees, exciting career prospects for newly qualified staff and an attractive quality of life.

Whilst the North has an excellent track record in technological innovation and transfer, principally drawn from its manufacturing strength, it currently displays low levels of corporate R&D in the majority of businesses37 and has few major corporate research headquarters. There are also very few public sector R&D facilities, which typically add to the attractiveness of an economy to knowledge based companies and knowledge workers.

3.6 UK Innovation Survey The UK completed an innovation survey in 2005 as part of the wider Community Innovation Survey (CIS4). The survey sampled around 16,000 businesses of 10 or more employees in a variety of sectors.

A company is defined as ‘innovation active’ if it is engaged in any of:

• Intro of new product or process. • Engaged in innovation projects not yet completed. • Expends funds on internal R&D, training, acquisition of knowledge

or capital equip.

A ‘wider innovator’ is a firm who have engaged in business restructuring, employed new management techniques, or new business/ market strategies to exploit more traditional innovation.

For the most recent UK innovation survey38 some 61% of firms were broader innovators – innovation active, wider innovators or both. Some 57% of the firms sampled were defined as innovation active regardless of size or sector. There is very little differentiation between the regions of the UK with the lowest innovation active being 55% (WM and EE) and 60% being the highest (SE). The Northwest has 58% innovation active firms (the second highest in the UK) and identifies 62% as broader innovators. 36 ‘Increasing the economic impact of Research Councils’, Warry Report, http://www.berr.gov.uk/files/file32802.pdf 37 The Northwest has significant Business R&D spend however, this spend is dominated by a few very large organisations. 38 DTI occasional paper 6, innovation in the UK: indicators and insights, July 2006


Perhaps surprisingly then, the Northwest in is the bottom tier of regions for the measure on distribution of turnover from new or improved products.

Expenditure on research and development is seen generally as a positive input for innovation and this is normally dominated by business R&D (BERD). The Northwest is in the top 3 regions of the UK by this measure but is in the bottom 3 by most other classic measures of innovation performance.

However, there are some contradictions from these figures – Eastern England has 60% higher BERD than Northwest (2nd only to SE) yet has the lowest overall percentage of ‘innovation active’ firms (55%) in the UK. It has the lowest percentage of turnover associated with new process introduction, yet the second highest in relation to new product introduction. Hence, although business R&D is an important input driver for innovation it is not the sole measure or determinator of innovation output.

The UK innovation survey identified costs as the most common perceived barrier to innovation, including the costs of acquiring finance. However, it should be noted that those companies involved in innovating were more likely to envisage barriers suggesting that firms learn about these as result of their attempts to innovate.

3.7 European comparisons The UK data forms input to the wider European Innovation Scoreboard which provides a summary innovation index (SII) for each nation and an equivalent index for the regions (RRSII). The latest report on innovation indicators is for 2006 based on data sets produced in 2004 and 2005.

In the European Regional Innovation Survey39 the Northwest is 56th of over 200 regions included in the survey. In England, the Northwest is 7th of the 9 Regional Development Agencies with only Yorkshire & Humber and North East having a lower innovation index.

However, as with previous measures these indicators are heavily biased towards the traditional Science and Technology view of innovation. The focus is on technology businesses and educational achievement in STEM areas.

Irrespective of these limitations the importance of skills and life-long learning is apparent. Were the Northwest able to match the achievement of Stockholm in these two areas it would move from 56th to around 11th or 12th in the scoreboard.

39 2006 EUROPEAN REGIONAL INNOVATION SCOREBOARD (2006 RIS), Hugo Hollanders, (MERIT – Maastricht Economic and social Research and training centre on Innovation and Technology), November 15, 2006 (revised January 4, 2007)


Regional Innovation Performance (2006)

1St

12th

56th


In the European Innovation Scoreboard 200640 the UK was positioned 7th and classified as an innovation follower - performance above the EU25 average but generally declining and the gap to the innovation leaders is growing. The UK is also positioned some way behind the US and Japan (which are used as comparative markers).

The UK’s relative poor performance is associated mainly with 2 groups of indicators – Knowledge Creation (Public/Bus R&D expend; share of bus receiving public funding; share of medium to high tech R&D) and Intellectual Property (EPO, USPTO, TRIAD patents; community designs and trademarks). Generally firms in the UK do not place a great amount of emphasis on formal protection methods and it is only the larger organisations who favour this process. Smaller entities prefer more informal or strategic methods of protection as these are perceived as more cost effective.

About 40 percent of the variation in regional per capita income can be explained by differences in innovative performance. This suggests a positive relation between a region’s innovative performance as measured by its RIS and its economic performance. The high per capita income levels for e.g. Brussels and Luxembourg, however, do point out that also other factors generate high incomes.

As in previous RIS reports, the link between innovative and economic performance is only weak. Sweden is one of the lead European countries for innovation indicators but has slipped from being one of the richest countries in the world to be below the OECD average.

3.8 Sainsbury Review & CSR 2007 The Sainsbury Review makes a strong case that the differences between services and manufacturing are increasingly blurred. Also, that the innovation challenge for manufacturing and services is the same – to move to high ‘value add’ and away from the low ‘value add’ activities.

40 European Innovation Scoreboard 2006 (Comparative Analysis of Innovation Performance) - PRO IINO EUROPE (INNO METRICS) – Report prepared for MERIT and the Joint Research Centre of the European Commission.


However, there is recognition that the service sector is very broad and that we need to understand better how innovation takes place in the different industries which make up the sector.

Research & Development spend is generally accepted as a poor indicator for innovation (‘invention’ is well captured by R&D spending) especially in services. There is emphasis on research (private and public) as a key input to innovation but, importantly, acknowledgment that it is of little value without knowledge exchange into industry.

There is increasing understanding of the ‘demand side’ factors for innovation and the concept of ‘users as innovators’. This emphasises the importance of the ‘innovation awareness’ in the consumer and public at large.

At a global level there is an argument which says that geography is no longer important and that skills and processes are readily transferable. Whilst this may be true for simple labour intensive products and services, Lord Sainsbury argues that the landscape for knowledge intensive activities is far from flat41.

This is

41 ‘The Race to the Top’, a review of Government’s Science & Innovation Policies, Lord Sainsbury, October 2007.

even more appropriate at the regional level where the innovation landscape is examined in finer detail, indeed urban areas accounted for over 67% of patent applications between 1999 and 2001. There are indications that high-quality research universities have a disproportionately larger effect on cluster formation32 and also on the number of higher quality spin out companies. This leads to ‘innovation spikes’ centred on urban areas containing large, research intensive universities.

Looking at the innovation system at a regional level inevitably makes the governance complex with potential conflicts arising between regional and national policy agendas. The role of the Technology Strategy Board (TSB) in coordinating these efforts is emphasised in the Sainsbury review and is supported by the addition of innovation to the TSB remit.

The Northwest has significant assets which can be utilised to drive up the levels of innovation activity.

• The richness of the collaboration on the Daresbury Science and Innovation Campus.

• Manchester as a designated Science City.

• The diversity and quality of regions University (HEI) base.

• The nuclear and energy opportunity.

• The significant industry base with its Research & Development investment.

4 The Policy

4.1 Where do we want to be?

he Northwest aspires to be a region of high innovation delivering goods and services from a successful knowledge driven economy where the level of skills and productivity allow the businesses to

compete in the global markets. TThe 2006 Regional Economic Strategy (RES) has clearly identified Enterprise as one of the key challenges facing the Northwest. There is a substantial gap of around 20% fewer businesses per head and new start-ups compared with the England average. Knowledge based businesses, particularly those with the potential for high growth, form a corner stone of a successful ‘knowledge-driven’ economy.

The RES also calls for innovation as one of the key factors for achieving the business objectives of the region. Businesses will be able to achieve much higher levels of added value through improved productivity.

The key RES targets for enterprise and employment are to raise the firm formation rate to 21,000 per annum, to create 80,000 new jobs in



knowledge occupations and to achieve GVA growth above the England average42.

The aim is to secure a sustained increase in the Regional GVA by improving access to the knowledge base, increasing productivity, increasing the number of knowledge jobs and hence maximising the potential to add significant value.

These objectives are increasingly positioned within a framework of environmental sustainability, a low carbon economy and improved quality of life. The Northwest has over 1500 companies active in this sector employing 53,000 people and generating turnover in excess of £2.7Bn in 2005. Eco-innovation has been described by the EU as any form of innovation aimed at significant and demonstrable progress towards the goal of sustainable development43.

The key elements of a successful innovative economy focus around three core activities – Innovation Skills; Innovation Collaboration; and Innovation Investment.

The capacity for a region to innovate is dependent upon achieving a balance in the pool of available skills to allow businesses to fully exploit their potential. Organisations must invest resources in human capital through adequate leadership, knowledge transfer mechanisms, and collaboration in support of networking and supply chain development. Importantly, these organisations must have access to suitable financial investment sources and processes.

Innovation

Collaboration

Innovation Investment

Innovation

Skills

Innovation Mapping

42 NWDA, Input to CSR 2007, Sept 2006. 43 EU Competitiveness and Innovation Framework, 2007-2013.

An essential addition to this framework is the need to understand the drivers and outputs of innovation activity – this Innovation Mapping will form an underlying aspect of any innovation system.

These core activities interact in a complex and collaborative manner where the innovation process combines knowledge, information and skills to generate new products and services. Enterprises, the market and investment offerings combine to determine the success or otherwise of these innovative concepts. It is increasingly difficult to show where this process is initiated and they are shown as circular in the diagram above but this does not imply that the process is linear in any way and the inter-dependencies should be emphasised.

A fundamental aspect is access to knowledge, its diffusion and the capacity of individuals or organisations to exploit that knowledge. This is increasingly a collaborative activity and the strengths of the bonds within the network may well determine the success of the venture and ultimately the overall economic performance.

This is very much in line with the interactions between the HM Treasury/ DBERR ‘drivers of regional competiveness’44 including the application of human resources which can be summarised in relation to innovation.

Skills • Employee skills raise the firms capacity to develop and

absorb new ideas. • Management/ leadership skills raise levels of

entrepreneurship.

Enterprise • New firms based on new knowledge/ markets. • New networks or clusters formed. • Entry of new firms increases competition/ forces

collaboration.

Investment • Increased competition creates incentives for business

investment. • Investment in tangible and intangible assets increases

capacity for innovation.

These inter-dependencies are shaped by the capacity and capabilities of organisations and the relative strength of their relationships. Supporting these activities are other aspects of the commercial, technological and regulatory environment within which firms operate. The outcome of this complex set of capabilities and linkages can be construed as the innovative capacity of the region, a key determinant of economic performance.

Although there are local concentrations of SMEs that recognise the value of knowledge, they are not on the same scale or intensity as established knowledge locations elsewhere in the world. The RES identifies innovation

44 ‘Devolving Decision Making: Meeting the regional economic challenge’, HMT/dti (March 2004).


and knowledge transfer as a major regional priority recognising the importance of encouraging innovation in existing companies as well as attracting greater levels of R&D investment.

The aim is to ensure a complete knowledge economy ecosystem, in the region with the potential to become an internationally recognised centre of the knowledge economy.

4.2 Northwest Priorities Improving the overall levels of innovation in the Northwest dictates raising the awareness of innovation, increasing the access to and exploitation of knowledge, and also increasing the motivation and capacity throughout the regions businesses.

This has specific objectives under the core activities.

• for skills

o increased graduate retention o support for the knowledge economy o increased critical mass of research excellence o increased innovation capacity within business o increasing levels of entrepreneurship o individuals embracing life-long learning o encourage a culture of innovation o raising individual ambitions and aspirations

• for collaboration

o improving the business/ HEI interactions o increasing the supply chain interactions o increasing the participation in networks o creating collaborative opportunities for entrepreneurs o public/ community engagement in innovation o support for key knowledge locations

• for investment

o increasing organisations investment in innovation resources o improving investment readiness o raising awareness for investment opportunities o increased business/ investor interaction o improving access to finance for growth o providing environments/ physical space for investment

It is apparent that measurement and mapping must be improved if the interactions between these activities and their influence on the regional innovation levels is to be fully understood. This may require, where appropriate, new metrics to be created particularly in the service sectors.


4.3 What are the gaps? Innovation activity is dominated by the traditional product based view of research-development-production with a science and technology emphasis.

The Government (DIUS, DBERR, HMT) aims to create the conditions for innovation through policies such as R&D tax credits, the Small Business Research Initiative (SBRI), and innovative public procurement. The recent creation of the Technology Strategy Board (TSB), a business-led body, has a wide remit to promote and support innovation and technology research, development and commercialisation in order to improve economic growth and quality of life. TSB programmes include Collaborative Research and Development, Knowledge Transfer Networks and Knowledge Transfer Partnerships45.

At a regional level, the Northwest has a business-led Science and Industry Council which works in partnership with all the individuals and organisations (public and private) that make up the science base. The current Northwest Science Strategy was launched in April 2007 and relates world class scientific achievement as a powerful driver for innovation and business in the region. The strategy focuses attention on the science rich sectors of Aerospace, Biohealth, Chemicals and Nuclear.

The TSB objectives originate from technology based innovation and the Northwest Science Strategy identifies and seeks to exploit the excellent science base in the region. This innovation policy takes a broader view and, whilst supporting these technology led activities, must also address the innovation requirements of the non-science based sectors eg. Food & Drink, Digital & Creative Industries and Business & Professional Services.

Business spend on R&D (BERD) fluctuates year on year and in the Northwest grew from £1.6Bn in 2003 to £1.9Bn in 2005 – nearly 14% of the total UK BERD. Whereas, public spend on R&D in the region for 2004 was only £81m which has remained level around 3.9% of total UK spend. The Daresbury Science and Innovation Campus (DSIC) is the major public non HEI R&D investment in the region.

Already home to the ground-breaking Daresbury Laboratory and the Cockcroft Institute (National Centre for Accelerator Science), the campus continues to attract a critical mass of scientific expertise, with many technology focused small and medium sized enterprises basing themselves in the newly built Daresbury Innovation Centre. The richness of the environment at Daresbury is exemplified in the ‘critical mass’ of partner involvement – Research Council, Universities of Lancaster, Liverpool and Manchester and a variety of high technology small businesses.

The opportunities for knowledge sharing, collaboration and the creation of wider science and technology networks provided by the campus make it a unique environment for innovation and business growth.

45 http://www.berr.gov.uk/innovation/technologystrategyboard/index.html


http://www.daresburysic.co.uk/locating/dic

There is significant breadth and diversity to the substantial and high quality knowledge which is created in the regions excellent HE institutions. Access and utilisation to this knowledge and the wider national and international knowledge base is important to the successful delivery of innovation. There have been significant steps taken to improve the access to this knowledge base and the interaction with business is growing.

Overall income that UK HEIs received from business and community interactions rose by 6 per cent from 2003-04 to 2004-05 and by a further 8 per cent over the period 2004-05 to 2005-06 when it exceeded £2.25 billion46. In many measures (income from collaborative research, consultancy, and intellectual property) the combined effort from Northwest universities feature in the top 3 in England.

However, more can be done to increase business demand and engagement in this process to convert this investment in invention into deliverable innovation.

The concept of innovation cuts across all the themes in the RES. The key ‘innovation’ gaps identified in the RES relate to

• Achieving GVA growth above the England average. • Creating 80,000 new jobs in ‘knowledge’ occupations. • Raising the firm formation rate. • Increase the graduate content of the workforce by

120,000.

There are also significant innovation challenges in meeting the climate change issues not least the reduction in CO2 emissions.

In addition, DBERR47 makes a useful distinction between innovation proficiency and innovation motivation -

Innovation Proficiency:

• Lack of market/customer/user understanding • Lack of expertise in the process • Lack of finance

Innovation Motivation:

• Failure to recognise and respond to changes/threats/opportunities • Lack of leadership, ambition and vision • Failure to understand, evaluate and manage/share risk

The rationale for public sector investment in innovation is justified around three market failures:

(a) Spillovers - Innovation activity can be considered to be below the socially optimum level as a result of individuals and firms not capturing the full extent of their investment.

46 Higher education-business and community interaction survey 2004-05 and 2005-06, HEFCE 47 Succeeding Through Innovation : 60 Minute Guide To Innovation Turning Ideas Into Profit, DTI, www.dti.gov.uk/innovation.


(b) Information - small firms in particular struggle to access all relevant information sources and hence attempt innovation in a disadvantaged environment.

(c) Coordination – small firms may need to collaborate on development and thus all returns may be difficult to appropriate.

These issues can result in individuals and firms not investing to the extent they could when the demonstrated returns from their investment cannot be achieved.

There is a supply of innovation services in the Northwest from both private and public sector which can all contribute to increasing business innovation proficiency. However, improvements in motivation can be much harder to achieve requiring a proactive approach to raise awareness and understanding of innovation benefits, process gaps and needs.

The objective of increased motivation to innovate can provide benefits in several ways including increased demand for innovation proficiency services and encouragement to collaborate in ‘open innovation’ connections between businesses, Higher Education and public sectors in the Northwest.

There are some 200,000 businesses in the northwest48 of which 58% have been classified as innovation active. There would be a significant uplift in regional GVA if the 84,000 “innovation non-active” could be motivated to innovate with new products and services.

Leadership and management skills are a fundamental pre-requisite for innovation and higher standards are required at individual and organisation levels.

The comprehensive nature of open innovation in product, process and service industries demands that a broad range of skills are necessary - not just STEM.

In addition, creativity and cognitive skills play a critical part in all stages of innovation and the ability for ‘invention’ must be nurtured at the earliest opportunity. Access to a wide variety of knowledge sources is critical to increased performance in global markets and the capacity to absorb and develop this knowledge is often overlooked.

All these skills are essential for wider participation in the ‘knowledge economy’.

The ‘Open Innovation’ concepts must be embraced by businesses in the region to increase productivity and also for competiveness in global markets. The requirements for successful networking should not be underestimated and business to business cooperation (supply chains, customers and cross sector activity) needs to be fostered.

Businesses need to extend their sources of new knowledge and this should be broad ’Knowledge Exchange’ rather than just ‘Knowledge Transfer’.

48 UK Business: Activity, Size and Location, 2006, Office for National Statistics. This report is based on data from the Inter Departmental Business Register (IDBR)


Access to finance is a fundamental requirement for entrepreneurs and businesses to develop and market innovative concepts. There are many stages required in this development but ‘Proof of Concept’ funding is an essential early component.

Innovation is often the driver for business formation or for business growth both of which have particular demands on available finances. At this critical stage there can be a gap in understanding of businesses and fund managers perceptions of ‘suitable’ funding. Closing this gap is essential preparation for the business to be ‘Investment Ready’

There is a body of work which is required to confirm these issues and to understand the necessary metrics for evaluation. Not least of these is developing an understanding the basic drivers for innovation and how these impact on improvements in productivity. The appropriateness of existing metrics for use with non product/ non science related innovation is a real issue which may be ‘hiding’ greater levels of innovation.

There is further analysis required surrounding entrepreneurial activity and how innovation occurs in the regions cities and rural areas.

5 Actions

onsideration is needed of the resources required to deliver innovation in successful high value-add, high growth businesses. These include access or creation of the idea/ knowledge (invention),

the availability of absorptive capacity to develop/ exploit the concept, the willingness (leadership) to innovate and access to suitable sources of finance to ensure that the innovation is delivered into the market.

CIn order to exploit the knowledge assets in the region we must recognise the existing regional strengths and invest in a broad range of skills, finance and support through a fully collaborative arrangement to deliver real innovation.

To raise the innovation potential of all businesses in the region requires

• Raising awareness of innovation benefits. • Increasing the motivation for businesses to innovate. • Creating an innovation culture. • Improving the access for business to the knowledge base. • Developing the capacity for businesses to absorb and develop

knowledge into deliverable innovations.

Innovation activity in the RES identified science sectors should build on the Northwest Science Strategy and the strong innovation activities which already exist. The low level of public funding for R&D may present some problems which innovation may address. The strategic plan for the Daresbury Science and Innovation Campus offers a significant opportunity to leverage further R&D funding.

There needs to be a much greater understanding of the innovation processes and outputs in the non-science dominated sectors. Technology and science do feature in these sectors and can be the tool with which the


innovation is enabled eg. Internet in banking, or additives in food processing.

To deliver these outcomes requires a coordinated programme of activities which builds on the interdependencies of skills, collaboration and investment. This leads to the following overall activity areas which are covered in more detail in Appendix 2.

Skills

• Raise awareness of ‘absorptive capacity’ across organisations. • Stimulate demand for innovation & entrepreneurship. • Increase the levels of graduate retention.

Collaboration

• Stimulate participation in open innovation. • Increase the demand for innovation support. • Extend/ exploit existing focal points of innovation.

Investment

• Increase awareness of resources required for innovation investment.

• Support the ‘investment ready’ approach. • Facilitate access to suitable finance.

Mapping

• Review and connect with existing metrics exercises. • Incorporate suitable metrics for ‘service innovation’. • Establish existing status of regional innovation.

There is already existing activity in some of these areas in a combination of publicly and privately funded programmes.

In support of the Business Link brokerage activity there are public projects in place and planned specifically to target innovation in the region. Knowledge to Innovate (K2i) is a project aimed at increasing the capacity of businesses to innovate whereas the Innovation Brokers programme is at an earlier stage and examines the ambitions and motivations for innovation.

There are also programmes targeted at enterprise for start-up businesses and those existing businesses with high growth potential. Networks are traditionally built up on trust between the various members and take time to establish. There are a number of innovation and incubation networks operating successfully in the region.

These existing programmes work to raise awareness of their specific benefits but more can be done to raise the overall profile of the benefits of innovation. The introduction of a high profile innovation award covering the whole of the Northwest will help to showcase the best innovations. Additionally, the release of a series of case studies identifying where innovation has successfully delivered increased performance.

There remains much to be done to pull together the strands of support for innovation in the enterprise, skills and investment areas. Fully coherent


activity and programmes with regional visibility are required to deliver a step change in innovation performance.

Innovation is a cross cutting theme and there is considerable collaboration and coordination required between the skills, enterprise, science and finance strategies for the region. A regional Innovation Advisory Committee featuring representatives of interested parties will be established to oversee this coordination.

6 Measures of Success

even key success factors were highlighted by DIUS49 together with a clear mandate for public sector intervention at regional level in order to influence business innovation. S• Sources of new knowledge. • Networks and collaborations. • Competition regime & entrepreneurship. • Access to finance. • Customers & suppliers. • Regulatory environment. • Firms ability to absorb knowledge.

Some direct measures can be made (for example) -

• Regional GVA increase/ uplift. • Increase in % of business turnover from new products/ services. • Uptake of Research & Development grants. • Usage of R&D tax credits. • Access to other private sector finance. • Numbers of training places. • Levels of skills achieved. • Graduates retained/ employed.

Existing surveys (national) already collect data on collaboration through measurements of informal and formal contracts with suppliers, partners and customers.

Success in mapping/ metrics will be demonstrated by a better understanding of the drivers and barriers for innovation in the Northwest. This will lead to the introduction of new/ more appropriate metrics for innovation, particularly in service related activities. Regional benchmarking will be necessary to establish baselines for future evaluations.

In addition some of the ‘softer’ outcomes may require specific activity or surveys to collect and analyse the date.

• Increased motivation to innovate. • Increased demand for innovation support services.

49 DTI economics paper 7, competing in the global economy – the innovation challenge, 2003.



Changing attitudes, behaviours and aspirations for investment in innovation and growth is a long term process and direct outcomes will not be readily apparent in the short term. However, reviews and progress monitoring at regular intervals will take place to ensure that the lower level activities, which will drive longer term outcomes, are taking place in sufficient quantity and quality.

• Business ambitions and aspirations for growth.

An overall impact review of this policy should take place on an annual basis and will be coordinated by the Innovation Advisory Committee.

Within this framework there are currently and will be proposed a number of individual projects or programmes. Each of these will be subject to formal evaluation under the programme management methodologies in use within the Agency.

A key element of this innovation policy is the mapping and benchmarking of innovation metrics. These will be used during implementation and review of the impact of the actions taken under this policy framework.

nnovation is only delivered through a combination of many inputs. The delivery of the actions under this will require the contribution and collaboration of many partners throughout the region. I

Consultation has taken place with diverse bodies throughout then region with the specific objective of providing an innovation framework within which this collaboration can prosper.

7 Implementation and Review

• Increased awareness of innovation (where its found, how it influences, how it benefits the region) – general public as well as businesses (‘innovation hungry’ consumers).

8 Appendix 1 OBJECTIVES GAPS ACTIONS

SKILLS

o increased graduate

retention o support for the knowledge

economy o increased critical mass of

research excellence o increased innovation

capacity within business o increasing levels of

entrepreneurship o individuals embracing life-

long learning o encourage a culture of

innovation

o A higher level of individual

and organisational skills are required.

o Wider participation in the ‘knowledge economy’ demands a broad range of skills - not just STEM.

o The ability for ‘invention’ must be nurtured at the earliest opportunity.

o Creativity & cognitive skills play a critical part in innovation.

o The capacity to absorb and develop knowledge is often overlooked.

• Raise awareness of ‘absorptive capacity’

across organisations. o The range of skills necessary to

deliver innovation are very broad and cover all levels of the organisation – high level and intermediate.

o The requirement for a ‘supply chain’ of innovation aware future employees and entrepreneurs places particular emphasis on reaching these at an early stage.

• Stimulate demand for innovation & entrepreneurship.

o There needs to be an increase in the desire to learn the skills required for these activities.

o Role models/ exemplars and show casing will play an important part in stimulating this demand.

• Increase the levels of graduate retention.

o Higher level skills are a vital feature to maintain a competitive advantage.

o This must be a collaborative approach to ensure that there is a demand for the graduates which the regions HEI produce.


OBJECTIVES GAPS ACTIONS

COLLABORATION o improving the business/

HEI interactions o increasing the supply

chain interactions o increasing the

participation in networks o creating collaborative

opportunities for entrepreneurs

o public/ community engagement in innovation

o support for key knowledge locations

o Business to Business

cooperation – suppliers, customers.

o The requirements for successful networking should not be underestimated.

o Business to knowledge base – the sources of new knowledge for businesses must be extended.

o Knowledge Exchange rather than knowledge transfer.

o ‘Open Innovation’ concepts must be embraced by businesses in the region. Cross sector activity should be encouraged.

• Stimulate participation in open

innovation. o Raise profile of open innovation

concepts. o Encourage supply chain

interactions. o Introduce cross sectoral events. o Increase opportunities to access

‘tacit’ knowledge. • Increase the demand for innovation

support. o Raise awareness of the necessity

for innovation to compete globally. o Highlight the productivity

improvement benefits. o Increase support for

entrepreneurs. • Extend/ exploit existing focal points of

innovation. o Link existing exemplars of

innovation into the wider region. o Maximise innovation value from

high profile/ strategic activity eg. Media City, DSIC, Science City.



INVESTMENT o Raise awareness of

investment in innovation o Increase the motivation to

innovate o Improve the availability of

finance to support early stage development

o Improve the level of businesses that are investment ready

o Ensure that innovation is not adversely affected due to a viable business being unable to access appropriate finance

o Raise awareness for investment opportunities and change the cultural aversion to equity finance

o Increase business/ investor interaction

o Identify and develop environments/ physical space for investment

o Develop collaborative working to maximise investment returns

o Lower than UK average

innovation scores o Aversion to risks of

entrepreneurship o Availability of suitable

accommodation/support package to assist innovative growth companies

o Availability of ‘Proof of Concept’ funding for businesses not accommodated by HEI sector

o Awareness and availability of funding to support R&D

o Availability of public and private sector finance to support business innovation

o Reluctance of private sector to invest in early stage/high growth/technology led companies

• Introduce ‘innovation case studies’ as

exemplars of good practice • High profile regional innovation award • Support for increased innovation

motivation and capacity • Encourage the ‘right innovation – right

team – right finance’ model. • Encourage private investors (Business

Angels) as Non Exec Directors. • Develop regional ‘proof of concept’

funds either grant or seed fund • Promote availability of R & D Funding –

Grant for R&D, R&D Tax credits and Seed Funding

• Support for growth companies – NW Business angels, access to publicly backed Venture Capital Loan Funds, private equity, venture capital.

• Development of future VCLF’s to align to priority sectors

• Support the ‘investment ready’ approach.

o Bring investors & clients together into a common understanding.

o Work with clients/ opportunities to enable greater success in early stage funding.

• Next stage company development after incubation and use of capital grants/loans to support development of business



MAPPING o Understand the drivers for

innovation & their interactions.

o Produce new or more appropriate metrics for ‘service’ innovation.

o Understand the regional

innovation drivers. o Identify suitable metrics –

particularly for service activities.

o How does innovation occur in the regions cities and rural areas?

o Entrepreneurial activity – further analysis of existing data.

o Do we have the full picture on measures of productivity? Business ‘churn’? Competitive forces?

• Review and connect with existing

metrics exercises. o The area of innovation metrics is

receiving national and international attention. Any review should ensure consistency as well as regional relevance.

• Incorporate suitable metrics for ‘service innovation’.

o What are the drivers of service innovation?

o Encompass wider understanding of innovation impacts in this diverse sector.

o Benchmark definition of innovation outputs.

• Establish existing status of regional innovation.

o The UK input to the Community Innovation Survey as a start point.

o Investigate links – innovation, productivity, GVA.


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Documents

innovation measures

innovation follower

open innovation

uk innovation performance

uk innovation survey

executive summary innovation

eu innovation scoreboard

heart of policy