Memorandum submitted by the University
of Warwick Science Park
The University of Warwick Science Park is mainly
concerned with assisting the start up and development of technology
based SMEs. This includes assistance with technology transfer
with the University of Warwick and a range of measures designed
to improve the growth prospects of our client SMEs. The comments
that follow are based on 15 years of experience in working in
this field. We are less concerned with the relationships of larger
companies and the way that they interact with the University.
Much of the character of the new technology
based firms (NTBFs) have been researched by Westhead and Storey
in the HMSO document "An Assessment of Firms located on and
off Science Parks in the United Kingdom". We generally concur
with the results of this extensive survey and it provides a good
background to the remarks which follow.
There is a misconception amongst many that NTBFs
conduct high levels of R&D. This is generally not true. A
few do, but these are the minority. For most NTBFs in the early
stages of development up to say £0.5 million turnover, their
regular commitment to R&D may be a few per cent of turnover.
This may mean R&D budgets of £25-100,000 pa. Most of
this they will expect to carry out in-house in order to maintain
control over development time scales. Thus, the amount of resource
available for funding extra mural R&D at a University or Government
Research Laboratory tends to be modest in terms of the type of
budgets that Universities are interested in.
NTBFs at Warwick and throughout the UK may be
classed into two types:
Product led businesses (both hardware
and standard software products)
Knowledge or service led businesses
(including bespoke software development).
The latter category outnumbers the former by
It is the product led businesses which have
the greatest need for R&D to ensure that their products compete
in today's fast changing markets. By contrast, the knowledge led
businesses rely more on simply "keeping abreast" of
latest thinking and technology, understanding what suppliers are
providing in the market place and helping customers to make the
most appropriate choice of technology for their circumstances.
They rarely push their customers towards "state of the art"
technical solutions, which can frequently cause teething problems.
Rather they steer clients towards new but proven technology. This
group takes a professional interest in research results relevant
to their field, but they rely on the product companies to translate
research into useful products, systems or services. Thus while
this latter group of companies are important to the diffusion
of technology their role in the processes of innovation tends
to be far less.
Concentrating on the product based NTBF we find
that their decisions about new product or process development
may arise in one of three main ways:
(1) Innovation led market pull ideas stemming
usually from the entrepreneur/company founder. These ideas arise
from identifying how two or more previously unconnected matters
can lead to solving a problem for industrial customers or otherwise
better meeting a market need.
(2) "Me too" market pull technologies,
where an entrepreneur has experience of a particular industry,
perceives that there are high margins being made and believes
that he can serve the same market from a lower overhead operational
base and hence return a good profit after charging a lower price.
He believes the price margin will win market share. In addition
the product he brings to the market usually has several features
which differentiates it from competition in the market place.
These entrepreneurs often fail to perceive the full complexity
and cost of gaining a significant market share.
(3) "Technology push", in which
a technologically minded entrepreneur perceives a possible novel
use (or uses) for a technical idea he has been working on. He
sets up a company to exploit this idea and finds that he has to
"create" the market. Although this last category is
often perceived as the typical model for UK NTBFs, they are in
fact a minority. However, it is quite a common model for academic
Once established with their first product developed
as a result of one of the above mechanisms, NTBFs need to continue
to innovate by developing successive generations of their technology
to keep up with rapid changes in the market place. Many product
based NTBFs fail to maintain the necessary level of investment
in R&D largely because they do not generate profits sufficiently
quickly or in sufficient quantity. The fate for these businesses
is either to be taken over (which is a common occurrence) or a
While most NTBFs come into existence with a
radically new product (apart from the "me too" type)
relatively few NTBFs consider developing other radically different
products or services. Rather as mentioned above they are more
Develop successive generations with
steadily improving performance and customer value;
Develop or licence or otherwise acquire
Given this background it is clear that the typical
NTBF is not going to have a heavy interaction with Universities
or Government Research laboratories. Equally clearly the greatest
potential for mutual collaboration to improve the flow of innovation
into NTBFs lies with the product orientated business. However,
even here where the need (and willingness) to cooperate is greatest
there are problems.
By far the greatest of these problems is the
disparity between time scales and perceptions of government labs
and universities and the research and development needs of the
"product" NTBF. The researcher from the 5 star University
department is driven by the RAE (research assessment exercise)
to deliver a minimum of two papers per year in certain high rated
scientific journals. While his/her research time scales are often
long (measured in years) the need to generate papers is inexorable
which means that even "interesting" short term diversions
to help an NTBF with a problem often have to be shunned, particularly
as the NTBF will usually not want any results of their collaboration
to be published. Furthermore, the NTBF often has tight deadlines
for its R&D. The market is moving all the time and factors
such as cash-flow militate against a leisurely approach to new
product development. Therefore the NTBF is more likely to be thinking
in terms of weeks or months as opposed to the academic's years.
If the above analysis were the complete story
then clearly there would be no interactions between universities
and NTBFs, whereas of course, there are examples of good relations
between NTBFs and universities. The problem is that the number
of relations involving NTBFs which lead to real innovation and
the exploitation of the UK's university intellectual property
base is much smaller than it could be. The statistics show that
too many of the relationships which do exist are casual and occasional.
The following are some thoughts as to the types
of initiatives that might be considered which could lead to a
greater level of productive interaction.
Create specialist intermediary organisations
The UK has excellent research at the level of
the University and Government research labs and UK NTBFs are not
intrinsically poor at innovating. What is missing is the means
of generating good and effective communication between the two
sides. In Germany there are three levels of intermediary organisation
which assist the process of the translation of research to exploitation.
Max Planck Institute. This is at
the "R" end of the R&D spectrum and interfaces better
with larger corporate R&D functions;
Steinbeiss Institutes set up largely
to serve the R&D needs of the large number of small and medium
sized enterprises, most of which cannot afford to maintain an
ongoing R&D function. Steinbeiss operations are subsidised
and permit collaborative R&D, technical training and access
to knowledge relevant to solving technical problems of the nature
typically found in commercial operations targeted at the SME.
It may not be appropriate for the UK to follow
the German model precisely, but it may be appropriate to see if
existing university and public sector research organisations could
take on this "intermediary " role. This would mean going
well beyond the existing industrial liaison office and contract
research activities. Perhaps within a region several universities
could "club" together to provide this type of service.
Change the Research Assessment Exercise (RAE)
The dysfunctional behaviour of the academic
community towards the commercialisation of research is definitely
getting worse as the RAE drives Universities to greater concentration
on the outputs which generate a good research score. While University
research might well have a bias towards the long term "blue
sky" type of activity for entirely logical and justifiable
reasons, it seems wrong that this should be at the expense of
opportunities to exploit research results for the benefit of the
Therefore we would argue that the RAE measurable
outputs might be adjusted to take account of other factors such
of commercial agreement) but otherwise excellent R&D;
Transferred research results to Industry;
"Spin out" company formation
Create More Spinout Companies
The UK has a very poor record for spin out companies
from its University sector and the results from Government research
labs is almost certainly even worse. Traditionally spin outs are
seen as companies formed by academics based on their research.
Research has shown that few of these companies are particularly
successful, but where such a company employs full time professional
management this picture tends to change and the companies are
The advantage of encouraging spinout activity
is that the motivation of the individuals concerned tends to be
high and this is absolutely essential for the successful exploitation
of complex scientific and technological ideas. However, spinout
activity does not have to involve the key academics. Experience
in several parts of Europe have shown that qualified research
assistants, postgraduate students, technical staff and even undergraduates
can be successful in this spin out process. In the UK context
we know that relatively few PhD students and Research Assistants
are likely to find long term careers in the University sector,
so why not encourage some of them to exploit the work they have
been doing in the laboratory. True, many do not have the desire
or the commercial skills, but again there are excellent models
(eg UNISPIN, Graduate Enterprise) for overcoming these barriers.
Unfortunately, so far, it is not in the self interest of Universities
to operate programmes like this.
The advantage of spin out companies is that
they tend to have intrinsically good relations between faculty
and company technical staff which leads to long term constructive
relations with each party having a good idea of the others' strengths
Improve Access to the Knowledge Base
The quantum of skill and knowledge that many
NTBFs require to develop a new product or solve a technical problem
does not usually involve much "leading edge" research.
Conversely it often does involve a sound grasp of current knowledge
in one or two narrow areas. Again this implies that it is not
the long term involvement of the leading academic that is required
and it is why programmes such as the "Teaching Company"
and "STEP" programme are so popular amongst SMEs in
general and NTBFs in particular.
Therefore we would argue that in the interests
of ensuring the good take up of knowledge from the University/Government
Lab Sector during the processes of innovation there should be
more or expanded schemes of the STEP and Teaching Company nature.
It is well known and experienced by ourselves that both of the
above programmes suffer from budget limitations as opposed to
lack of company demand. Therefore expansion of the schemes will
almost certainly be taken up by SMEs.
In addition to the existing two programmes we
also perceive a need, articulated by SMEs themselves, for a programme
which provides "teaching company associates" for periods
of 6-12 months as well as the more usual two year programmes which
are operated currently. This would then provide the continuum
from the 2-3 month STEP project undertaken by undergraduates to
the full two year teaching company associate programme.
Improve Access to Finance
Access to finance for NTBFs is a subject of
its own which has been covered by the Bank of England and Tech
Stars reports published last year. We gave evidence to the Tech
Stars report and were delighted with the balanced approach of
this report which highlighted the significance of developing the
management team as well as finance the developing growth NTBFs.
Therefore, the comments below on improving access to finance should
be taken to include measures to ensure that the recipients of
such finance have the necessary breadth of experience and skills
to develop their business, and if not then they need help in acquiring
these skills before finance is injected.
The key measures in relation to improving the
exploitation of University research we see would be:
Developing the SMART programme. It
is an excellent scheme but needs to be extended and made more
flexible in the amount of grant given both as a percentage and
total funding available to a single project. We are aware that
many companies awarded SMART grants do not succeed commercially.
We are not surprised since no attempt is made to help these often
small and immature companies to develop their management skills
as well as developing the product or service. This is the main
shortcoming of the scheme in our view, and a shortcoming that
is amendable to correction.
The creation of venture capital "seed
funds" for speculative developments requiring finance below
£250,000. There are very few such funds in the UK and many
of those are "drying up" as a result of relative disinterest
by the institutional investment sector who see the management
time as disproportionate to the amount of finance managed in each
fund. We see the development of the Merseyside Special Investment
Fund (MSIF) as an interesting regional development in this field.
Although the MSIF is more than seed capital it demonstrates one
effective way of bringing small scale finance closer to the SME
sector through regional economic development interests.
BTG used to operate "royalty"
loans to encourage risky R&D that could lead to interesting
new intellectual property. Loans were repaid by way of royalty
payments on the exploitation of the arising IPR. In effect they
were success loans.
The recent budget announcement of
the creation of a University Venture Capital fund we see as largely
irrelevant to NTBFs. Generally we see this fund being used for
bringing some longer term research to the stage where it can be
taken up by larger companies. Hopefully, it might also be adapted
to encourage University spin outs.
27 April 1998