Supporting Innovation

Technology in a Cold Climate: Supporting Innovation Jeremy Howells 1.

The Importance of Innovation

The ever increasing nature of global competition and the challenges posed by the recent financial crisis have highlighted the importance of innovation in terms of its role in driving competitive performance and economic growth. The ability of businesses to adapt to new market, strategic and technological opportunities is central to their long term growth and prosperity and that of the United Kingdom (UK) economy as a whole. British businesses will provide not just finished products, but increasingly, intermediate goods and the complex services that are an integral part of modern supply chains, including 1 design, marketing and financial services . In turn, it is important for governments and other public agencies to formulate policies and frameworks which encourage and support innovation and knowledge exchange within their economies. 2.

Key Areas of Progress for UK Innovation Policy

The UK perhaps dwells too much on its failures. There have indeed been a number of areas where the UK has been successful either in terms of innovative performance or in relation to innovation policy formulation. It is perhaps too early to identify all the areas where UK innovation policy has been successful (in part a reflection of the lack of adequate evaluation in a comprehensive sense); however, there have been a number of notable successes not only in terms of policy formulation (however see Section 5), but also in relation to the UK’s innovation performance. These are: 1. 2. 3. 4. 4. 5. 6.

creativity, entrepreneurship and design; the notion of the innovation grand challenges; innovation and sustainability; knowledge exchange through mobility of personnel; higher education system and knowledge transformation; fostering demand-led innovation; and, recognition of innovation in services and service innovation.

In each of these areas the UK has a good innovative performance or has made notable strides in policy formulation over recent years. More specifically: Creativity, Entrepreneurship and Design: Concern has been expressed by various commentators and 2 policymakers in relation to the UK’s creativity and entrepreneurship , but it is argued here that the UK is, and remains, a highly creative and entrepreneurial society. Overall, the UK has done well in design, creativity and rates of entrepreneurship and has an internationally renowned design consultancy sector 3 with expertise across all design disciplines . UK researchers are some of the most efficient and productive 4 in the world and an analysis of the research base shows the UK as second only to the USA in terms of 5 most leading scientific indicators . Lastly, in relation to entrepreneurship the UK has had a good and 6 improving international profile . Innovation Grand Challenges: The UK has grasped that major technological issues and innovation needs do not come in simple, single disciplinary packages but rather evolve around meeting complex, interdisciplinary scientific and technological challenges. The UK has begun over recent years to successfully meet some of the major scientific, environmental, social and health challenges of the twenty first century. The Technology Strategy Board (TSB) together with the UK Research Councils (UKRC) have now been

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BERR and DIUS (2008a) OECD (2005), p. 225. 3 Moultrie and Livesey (2009) 4 DIUS (2008) 5 Adams (2009); Kitson et al. (2009) 6 In relation to self-employment rates between 1972-1996, Parker and Robson (2004); see also Cowling et al. (2007) 2

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charged with meeting these challenges and are investing in these major issues through the construct and 7 formation of Innovation Platforms . Innovation and Sustainability: Perhaps, uniquely, global warming and wider environment change represent 8 the major challenges for the millennium. There have been a series of policy statements and investments associated with dealing these set of issues. More recently, initiatives in sustainable development have been linked to innovations which improve process efficiency and organisational cost savings, but are also associated with the production of new environmentally-responsible goods and services, such as electric vehicles, wave power generation and better logistical practices (through, for example, improved routing of lorries and trains). Policies have now started to tackle this major agenda, but the UK has started late (Section 5) in trying to develop an industrial capability and structure to exploit the many opportunities arising from the climate change and the need to conserve resources. Knowledge Exchange through Mobility of Personnel: The UK has a good track record of knowledge transfer and interaction through the exchange and placement of staff from the public to private sectors and learning by doing. The original Teaching Company Scheme (TCS) was established in 1975 by the Science and Engineering Research Council (SERC) and has subsequently been replaced by the Knowledge Transfer Partnerships (KTPs). These schemes have given British firms new opportunities to break into new technologies, markets, processes and production methodologies and have been widely 9 admired across the world. They remain a key mechanism for achieving knowledge transfer . Higher Education System and Knowledge Transformation: The higher education system in the UK remains one of the success stories of the UK economy. According to recent internationally recognised rankings for 10 2008 the UK has two universities in the top ten of the world and five in the top fifty . UK universities also 11 do well in international terms in relation to licensing, knowledge transfer activity and spin-outs . There have also been a number of successful higher education activities, including the Higher Education Infrastructure Fund (HEIF), with the agenda now turning to a wider range of ‘third mission’ activities and on 12 the impact of research . Fostering Demand-Led Innovation: Demand-side measures within innovation policy have begun to be 13 more widely developed across Europe after the influential Aho Report was published in 2005 . The UK’s 2004 ten year ‘Science and Innovation Investment Framework’ together with the more recent ‘Innovation Nation’ White Paper have emphasised the role of demand-side innovation policy, identifying lead markets (and lead consumers), together with the power of public procurement as dominant drivers of the innovation process. The latter has been identified as the main pathway for government to play a significant role in demanding innovation, and in late 2008, DIUS issued a detailed innovation procurement plan to this effect. Innovation in Services and Service Innovation: There have been a number of policy reviews and 14 statements about innovation in services recently in the UK . The success of the UK economy is seen as being intimately bound up with the success of its service economy. The majority of UK jobs, GDP and 15 productivity growth are based on service activities . Services play a major role in the UK’s long term economic growth and development. Studies have shown that service activities in the UK are innovative and are generating more innovations over time. Service innovation is often closely linked to changes in dis-embodied, non-technological innovative processes, organisational arrangements and markets. Similarly, service firms closely ally investments in innovation with investments in training and skills based provision. No longer can service firms therefore be dismissed as just passive consumers of technology or mere facilitators to manufacturing companies.

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Technology Strategy Board (2009) DEFRA (2008); Conservative Party (2009) 9 ‘Lambert Review’ (2003) 10 Center for World-Class Universities, Shanghai Jiao Tong University (http://www.arwu.org/rank2008/ARWU2008_A(EN).htm) 11 Library House (2007) 12 UKRC (2007) 13 Commission of the European Communities (2006) 14 BERR (2008); The Royal Society (2009) 15 Howells and Tether (2004) 8

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Gaps and Weakness in UK Innovation and Innovation Policy

3.1 Introduction There has been much debate about why the UK lags behind in terms of its innovative performance and where the real issues are for support and development are. There are two major areas which have been 16 recently highlighted in the Innovation Nation background reports as being of major importance to the UK. They are, firstly, that although British businesses which invest in innovation and do so successfully, both UK-based businesses and the Government itself continue to invest less in research and development (R&D) as a percentage of Gross Domestic Product (GDP) than other comparator economies. Secondly, our excellence in generating knowledge is not consistently translated into innovative and commercially successful goods and services, i.e. their development and protection. These are not new issues of concern for the UK economy, but given they have been of concern for so long and remain of central concern for policymakers it is worth focusing on them in more detail. The rest of this paper seeks to unpack and reframe these concepts in order to evaluate their policy implications; whilst a third, yet related, set of issues will be raised at the end of these two main elements. 3.2 Investment in R&D and Innovation: The UK an Advanced Knowledge Economy? R&D is only one form of investment in innovation, there are important investments which can be made in plant and equipment, training, design, software, training and more disembodied forms of innovation. It is 17 therefore important to take a wider view of innovation and involves activities that are often hidden , such 18 19 as in the service sector and in more traditional or capital intensive sectors . Indeed, some commentators have argued that R&D has become less important over time. Such views tend to come from traditional, linear views of R&D, which only see research activity as an input into more formal aspects of innovation. However, this ignores the increasingly important role of R&D in terms of the creative function of the firm, in relation to articulating future market, technical and organisational needs of the organisation, as a facilitator and diffuser of innovations and in terms of its ability to help absorb new 20 technologies or ideas from outside the firm . There has been some improvement of the UK position, with some £16.1 billion being spent on R&D performed within UK businesses (BERD), a rise of 11 per cent at cash (current) prices compared with the 21 2006 total, in turn a rise over 2005 . However, total R&D expenditure by the UK at 1.47% was below the EU-27 average in 2006 (compared to 3.87% for Finland and now only just above the rate for China of 1.42%) and was also one of the EU countries to experience overall relative decline in their R&D intensities (total GERD as a percentage of GDP) over this period. Even the absolute growth rate between 2000-6 lagged behind the European Union (11.9% compared with 14.8%) and this should be considered with the much higher growth rates of R&D activity outside Europe. As noted earlier, R&D activity is only one measure of innovative capability and performance and other measures of innovation should also be considered. The UK still remains an ‘innovation leader’ within Europe in terms of a wider composite of it innovative performance in the Summary Innovation Index (SII) 22 for 2008 . However even here the UK is the second worst performing country in terms of average growth in innovative performance between 2004 and 2008 and much of this was based on access to venture 23 capital and the general finance and support environment which the UK economy provided . In summary, the UK, therefore, remains a leading innovative performer within Europe (and may have above average productivity in its R&D and innovative inputs; arguably ‘punching above its weight’ with the resources it devotes to innovation), but across a broad set of measures the UK continues to be overtaken by countries, such as China, outside Europe. As such, the UK has simply not kept up its investment in R&D and innovation over recent years, especially from the private sector. The UK’s notion, therefore, of remaining an advanced knowledge economy at the top of the pyramid of knowledge and innovation activity

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DIUS (2008) NESTA (2007) 18 The Royal Society (2009) 19 For example, BP uses the wider technology investment as the key benchmark metric it uses rather than R&D investment 20 Howells (2008), p. 247; Islam (2009) 21 ONS (2009) 22 Pro Inno Europe (2009), 9-12. 23 Pro Inno Europe (2009), 43. 17

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is becoming increasingly challenged. Instead the UK has now become a ‘second tier’ country in terms of innovative capability and performance in world terms. This may be the right strategy for the UK in terms of its ‘fit’ with business interests and activity, but what this means for policy has been less well articulated or discussed. 3.3 Effective Development and Protection of UK Innovations 3.3.1 Introduction The fastest-growing global product and services markets are, in many cases, areas where the productivity and trade performance of British businesses still remain strong. Although the UK still plays a leading role in certain areas of science and innovation, it continues to be less successful in converting science-based findings into commercially valuable innovations and in gaining fully from the long term benefits of its innovations. What are the issues and barriers behind the lack of progress in achieving the commercial and economic benefits of innovation? There are a number of elements to this: 1. 2. 3. 4.

high tech ‘gazelles’ and ‘gorillas’; cross-border firm transactions and innovation; focusing on the value added and the value chain; and, intellectual property management.

Each of these will be discussed in turn. 3.3.2

Gazelles and Gorillas

If the UK has an overall a good track record in creativity and entrepreneurship around the field of innovation (Section 2), it has been less successful at developing and sustaining innovative talent. Although new firm formation is important in creating jobs and output, it is the relatively few high growth firms, the ‘gazelles’, which may in turn become high growth large firms, the ‘gorillas’, which make the major 25 impact on jobs, output and value added . Recent evidence suggests that although the UK may not be 26 doing as badly as often supposed compared with other countries , gazelles and, to an even greater 27 extent, gorillas remain rare events in the UK . The problem the UK seems to have is in the relatively poor ‘conversion’ rate and migration of new firms up the size bands, firstly, into gazelles and, secondly, into gorillas. 28

In relation to turning into high growth gazelles there are undoubtedly a set of barriers , especially during the current recession, but perhaps more deep seated are a set of factors around cultural aspirations. Too 29 many UK business owners are ‘trundlers’ where growth is simply not an objective, or, alternatively, for high tech business entrepreneurs they see themselves a ‘serial entrepreneurs’ where growing and managing a business is not their long term aspiration and are happy to sell their businesses to bigger companies, often from overseas (Section 3.5.3). This may be perfectly reasonable and logical from the individual entrepreneur’s viewpoint (and indeed inclination and skill set), but has important implications for the growth of the wider British economy. In terms of the latter context, UK entrepreneurs may be all too happy to sell out early on. This may be due to issues around aspirations and work-life balance, but also involves venture capital funding pressures and pre-scripted exit strategies, all of which are difficult to alter. The UK has good levels of new firm formation, even in high technology sectors, but may have a higher failure rate of British firms trying to traverse the important transition stages from micro firm to large SME and beyond. 3.3.3

Cross-Border Firm Transaction Asymmetries and Innovation

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Or a ‘middle knowledge investment economy’; see Brinkley (2006), p. 8 using OECD 2002 data Storey (1994), 113-119. 26 See Cowling et al. (2007); although see Owen (2008) 27 Carphone Warehouse and Vodafone is perhaps one on a very broad definition and Autonomy and ARM could be possibly classified as smaller gorillas (Department for Business Enterprise and Regulatory Reform (BERR) (2008c), 18-21. 28 The Sainsbury Review (2007) highlighted that the main investment gaps were in securing the initial capital and in the later development and demonstration stage. 29 Curran (1986) 25

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It is important that the UK remains an open, vibrant economy which seeks the best ideas, investment and 30 technological capabilities from anywhere in the world . A number of foreign, world class firms have a long history of investing in UK talent and research, including IBM, Pfizer and Sanofi Aventis. Nevertheless, retaining major UK owned companies remains important in terms of their role in high level decision-making 31 functions and their purchasing and use of high value added, knowledge intensive services (see below). However, there is a serious asymmetry in net cross-border takeovers of UK firms with a dramatic switch from the UK being a net outflow country (some £91,709 million in 2000 to now being a major net inflow 32 country . Ever since 2004 the UK is now a major net inflow country and this has continued through the 33 recession, albeit at somewhat lower levels (Table 1) .

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Mandelson (2008) This goes back to the earlier notions of the ‘lead firm’ concept (see, for example, Erickson 1972). 32 OECD (2006), 18. 33 ONS (2009) 31

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Table 1 Net cross-border transactions involving UK companies, 2004-9 Net transactions abroad Net transactions in the Net cross-border by UK companies UK by foreign transactions involving companies UK companies 2003 12,113 5,689 6,424 2004 13,224 24,414 - 11,190 2005 20,064 41,893 - 21,829 2006 16,198 63,542 - 47,344 2007 47,593 74,597 - 27,004 2008 17,608 47,413 - 29,805 Source: ONS (2009) 34

The danger here, if this process is continued , is that foreign takeover activity can have a serious long term negative impacts on innovation, jobs and economic growth. More particularly it has two major effects: firstly, that of research and innovation capacity and, secondly, that of the continued expansion of high level knowledge intensive services. In terms of the first point, a recent study of German firms being acquired by overseas companies suggests significant negative effects of foreign takeover; with a foreign takeover reducing R&D expenditure per employee by some 60% for the firms concerned as the overseas company 35 rationalises and relocates R&D activities to foreign headquarters sites . This may not be a problem if the acquired firm can utilise R&D more effectively from elsewhere, but the study suggests no compensating 36 effect of the innovation output profile of the acquired firm at least in the short term . The policy assumption here is that the UK operates a level playing field and that is must remain an open, global player and therefore no policy rationale or intervention is in place to consider the implications of this potential long term net inflow position. However, in research and scientific terms the implications of this position being sustained long term could be huge for the UK’s innovation profile. At the very least we need to ask the question that, if we do not feel the UK can do anything here in terms of policy intervention even 37 if there is a lack of reprocity , ‘how does the UK remain an advanced knowledge based economy at the forefront of technological developments?’ Secondly, headquarters (HQs) functions also have a significant impact on the wider local and national economy through the generation and execution of high level knowledge functions through increasing local 38 demand for high value added products and services, such as design, advertising and legal services . The expenditure impact of HQs comprises the direct and indirect jobs created as well as the extra income within an economy which an HQ generates. The economic ‘multiplier effect’ of headquarters functions are therefore profound and, in the case of London, help support a wider knowledge and innovation infrastructure that is important for the whole of the UK. The gradual erosion of London as a headquarters 39 base and its competitive position will therefore have much wider implications for the whole of the economy. Given the evidence of mergers of acquisitions in the UK, therefore, the UK seems to be in danger not only progressively losing the pool of major corporations and their competences in research and innovation, but also not replacing these companies internally through indigenous growth and development (Section 3.3.2). 3.3.4 Value Added Strategies and the Innovation Value Chain: Positioning and Leveraging If the UK position of being a second tier country is to become a more permanent feature of the UK economy, much more focus needs to be paid on how UK firms can articulate more niche, but high value added strategies into reality. In particular, although there has been a general discussion about the UK needing to ‘move up the value chain’, in reality there has been little discussion about what this actually means for firms. Examples have made of companies, such as ARM or Dyson, that aim to be highly innovative, ‘hollowed out’ or niche value-added companies that generate key intellectual property (IP) and then license or outsource their manufacturing to other companies. ARM is a UK-based firm which licenses high-performance, low-cost, power-efficient microprocessors and system chips to international electronics

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Together with the recent outflow of HQ incorporation and functions because of tax reasons. Stiebale and Reize (2008), 18-20; see also OECD (2007b), 72. 36 Stiebale and Reize (2008), 20; see also Ebersberger and Lööf (2004), 28; Lööf et al. (2006), 19. 37 OECD (2007b), 73. 38 Wood (2008) 39 For a wider discussion on this see, for example, Burger et al. (2009); Derudder et al. (2009) 35

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companies for use in an extensive range of applications. The company's product licensing business unit licenses the ARM architecture, cores, microprocessors, system chips, peripherals and software tools, while another business unit works with third-party partners to provide ARM licensees with models, model 40 generators and automated integrated circuit design tools . Equally, there are examples of niche, high value manufacturer associated with, for example, makers of ‘embedded product enhancers’ (EPEs), such 41 as Strix . 42

The importance of viewing innovation through the whole value chain process is therefore key here , but not the whole picture. Some UK firms evidently have developed good strategies for staking key positions within the overall value chain. This requires high level competencies in defending intellectual property (Section 3.3.5), but also in horizon scanning and roadmapping activities and in having the freedom to be able to take long term positions on strategy and investment. However, much high value research, development and manufacturing work has now been offshored aboard leading to a fundamental undermining of the UK’s industrial capability with fewer opportunities for a more nuanced approach to strategic positioning in the value chain; a feature that has been even more starkly highlighted in the US 43 context . For other UK firms further down the value chain, access and engagement with foreign lead 44 firms will become ever more important as decisions on innovation platforms and architectures are taken overseas. 3.3.5 Intellectual Property and Innovation If this shift towards a more focused but fragile strategy is implied for the UK, UK firms will need to adequately defend their knowledge assets and technological capabilities. This does not always involve intellectual property rights per se and can also include the speed of development and short innovation cycles, secrecy and branding. However, for many firms, IP (including not only patents, but also trademarks, design rights and copyright) will be important for preserving their competitive advantage given that many UK companies still lack actual knowledge about IP protection and strategies to defend their intellectual assets. 45

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There has been much debate in the UK and elsewhere recently about how far IP should be protected 47 and where the boundaries should be drawn in relation to defending innovations . Concern has been expressed, on the one hand, that IP protection is too restrictive limiting the open development of technologies and software. Others, however, worry that the UK, which has become ever more reliant on intangible knowledge based assets, needs to make a careful assessment on how these assets might be 48 better protected . The UK is not alone here. A number of countries have noted with concern that IP 49 mechanisms and policy are not fit for purpose and need a comprehensive review . The UK needs to develop a clear strategy towards IP and how firms can effectively operate, harness and defend their 50 knowledge bases for competitive advantage and growth . 4. Gaps and Mindsets 4.1 Introduction This discussion has outlined some of the outstanding challenges facing the UK in this cold climate. There are three further, related elements which need reviewing, firstly cultures and behaviours, secondly the issue of public sector innovation and thirdly skills and innovation. 4.2

Changing Behaviours, Aspirations and Incentives

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A quote from 15th April 2002 issue of Business Week: “ARM almost single-handedly created a new business model: hawking intellectual property instead of selling actual chips.” 41 Marsh, P. (2009) ‘Hot prospects for niche producers.’ The Financial Times, 7 September 2009; Strix has over 450 patents to defend its key intellectual property. 42 Hansen and Birkinshaw (2007) 43 Pisano and Shih (2009), 119. 44 See Henderson and Clark (1990) 45 IPO (2009); CBI (2009) 46 There is ongoing debate about creating an effective intellectual property right (IPR) framework that stimulates and sustains innovation in Europe 47 Atun et al. (2006); Stansfield (2008) 48 Stansfield (2008) 49 Australian Government (2008), p. 86. 50 Strategic Advisory Board for Intellectual Property Policy (SABIP; a Non-Departmental Public Body with the Intellectual Property Office as its sponsor department) has begun to start this process since its inception in 2008.

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It was highlighted in Section 3.3.4, that one of the barriers and challenges to developing a more dynamic and growth-oriented economy was the culture towards innovation, associated with behaviours, aspirations and incentives in relation to innovation and research. Attitudes by the private sector in Britain towards investment in innovation, science and technology remains muted (Section 3.2). These attitudes are often nebulous and hard to define, but remain crucial if the UK is to fully develop a strong and innovative knowledge based economy. How can UK business owners move from being ‘trundlers’ or ‘lifestyle business’ managers into ‘ambitious’ or ‘high expectation’ entrepreneurs? How do we change these aspirations or should we? What may make sense at the national level does not at the individual level and vice versa. However are there ways in which aspirations can be changed through altering incentives, institutional structures and wider culture attitudes associated with innovation and growth? Changing behaviour and attitudes, through incentives and other policy prescriptions, remains one of the hardest policy tasks, but perhaps one of the most important. Innovation and entrepreneurial policies are now 51 seeking to address this through the context of behavioural additionality . We need to further build and support such policy initiatives if businesses and industries in the UK are to succeed in the field of innovation and competiveness. 4.3 Public Sector Innovation Many of the challenges faced in terms of behaviour and cultures in relation to innovation also apply to the 52 public sector . The challenges here are to help individuals, especially innovation leaders, within the public sector to be given the resources and flexibility to find novel ways of solving problems and then also to 53 encourage the best practice mechanisms which emerge from this process . This has started to be 54 addressed through the creation of the Whitehall Innovation Hub which seeks to connect innovation strategy and practices across government in the UK as well as to eliminate institutional barriers to change, efficiency and innovation within government departments and beyond. Here lack of incentives (and too many disincentives) also remains an important hurdle for public service innovation. However, much more remains to be done so that innovation can enable a more effective and efficient public sector. Changes in public sector frameworks and operations can also help support and facilitate 55 change within the public sector, through more effective and innovative procurement or providing a better and more supportive institutional environment for innovation.

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Malik et al. (2006); see also, for example, Davenport et al. (1998) Maddock (2009), 19-20. 53 Maddock (2009) 54 Whitehall Innovation Hub (2008) 55 Edler and Georghiou (2007) 52

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4.3

Skills and Innovation

There have been significant policy reviews and statements in trying to tackle the skills agenda and in 56 highlighting the importance of skills in the overall competitive performance of the UK . More specifically it has been recognised that improved human capital and skill levels can help the research innovation potential of companies through improvements in the absorptive knowledge capacity of such 57 organisations . Nonetheless, the problem of skill shortages as an overall factor limitating UK growth and innovation remains with the low quality of UK workforce skills helping to explain up to one fifth of the UK’s 58 current productivity gap . In particular, problems still exist in publicly funded training programmes, not least their complexity and ease of use for companies seeking such help, but also in coordinating such 59 efforts at the local and regional level . More generally, a major intermediate skills gap exists within the 60 UK , exacerbated by the continued lack of collaboration between further and higher education providers. 5.

Support for Innovation: Conclusions and Policy Implications

The UK has a good record of developing ground breaking innovation policies and mechanisms (Section 2), but it has not been so successful in implementing such policies and in terms of its attention to detail. In part, this may reflect the scale of resources devoted to such policy mechanisms, which are often too little and too late; this may also imply more focus on more limited policy efforts in the future. The requirement 61 for further foresight work, which has the UK helped lead in the past , needs further strengthening so that a clearer vision of the future can be gained in order to, for example, shape and articulate new markets for technology which can then help seed and absorb science, technology, engineering and design resources from the UK science and innovation base. Equally, a more proactive ‘formative evaluation’ framework should be used to help improve and adjust policies throughout their life span rather than partial and ‘summative evaluation’ exercises which are carried out at the end of a policy or specific programme. In an economic landscape which has shifted considerably since the financial crisis the UK has to be even more competitive. The UK cannot escape the fundamental shifts which have occurred in the global locus of production, growth and innovation. Thus, although the UK remains a significant innovation player its position has become more fragile and vulnerable to change. The notion of the UK becoming a high value added, creative and innovative knowledge-based economy at the very least needs further unpacking and critically assessing. The UK is in danger of being crowded out in terms of innovative activity by much bigger growth economics, such as China, India and Brazil, whilst autonomy of much its high tech economic destiny now lies outside the country. UK firms must be given the business models and tools (Section 3) to position themselves within this global innovation environment. This means not only establishing a future position (niche or otherwise; Section 3.3.4), but in being able to adequately defend (Section 3.3.5) and further exploit it. This cannot be a simple supply led policy; it must be demand-led. However, as we have seen, UK firms have not been demanding enough in the sense of investing and valuing research and innovation. One way is through introducing more incentive-based schemes and demonstration programmes which can help stimulate such demand. More fundamentally it needs to be coupled with the desire to create genuine behavioural additionality through changing how firms view, value and behave towards innovation and growth.

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‘Leitch Report’ (2006) Mason et al. (2007), 103. 58 O’Mahony and de Boer (2002) 59 Wills, P. (2008). 60 NESTA (2006). 61 See Georghiou (1996). 57

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