Examination of Witnesses (Questions 32-39)
QINETIQ GROUP
PLC
20 JANUARY 2004
Q32 Chairman: Good morning, Sir John
and Dr Mears. We have been looking at evidence from the World
Economic Forum called competitiveness ratings and we get the impression
that Britain is falling behind. On the other hand, you look at
Porter and we may not be quite as bad. So it may be it just depends
on to whom you look for comfort. Your submission incorporates
the World Economic Forum ratings and you say that this drop in
the ratings may be due to the R&D investment gap between the
UK and other countries. Is this gap getting worse? It seems that
there are always calls for greater levels of investment. We know
about the issue. Are we addressing it or is it getting worse?
Sir John Chisholm: The World Economic
Forum paper itself said that the R&D gap is one of the issues
leading to our relative performance. You mentioned that there
are a number of different surveys of a similar sort—the
OECD does its own as well—and what is clear is that we are
not, if you like, in the Finland league. There are examples of
nations who have done really rather well over the last 10 or 15
years; I do not think we have done especially poorly but we have
not done as well as that. We certainly have not succeeded in the
way the United States has done of creating what is apparently
a sustainable, vibrant, world-leading economy. So whichever way
you look at it there is plenty for us to learn about and, in amongst
the package of things which one needs to worry about, the continuing
under-performance, particularly in the industrial foreign league,
is clearly one of the issues.
Dr Mears: On Michael Porter, I
suppose he is slightly more optimistic than the negative views
you get if you read the DTI economic papers, which you can get
rather depressed about. However, Michael Porter does make the
point that OK, the UK has pulled its socks up in the last two
decades but we do now face a pretty major change in what is going
to make us competitive. We were competitive previously because
we did tend to have low wage rates and freedom from regulation.
Now we do have to be competitive based on added value and innovation.
His story is not that positive. He says, "Don't get depressed,
but nevertheless the UK has got a pretty serious challenge".
Q33 Richard Burden: In the last three
years there has been the introduction of tax credits for R&D
investment to encourage that. Originally that was for SMEs but
there was quite a big demand for that to be extended and, obviously,
it has been to large businesses. How effective do you think they
are?
Sir John Chisholm: They are undoubtedly
helpful; there is no question about that. They could be more helpful,
for instance, if one looked at the rules more closely. Particularly,
you will see in the paper we submitted that we said that knowledge-networking
is highly important in innovation. Extending the tax credits to
this element more strongly would be very helpful. They are a bit
restrictive on that front. On their own they will not solve the
whole problem. There are nations—Finland for instance—which
do not have significant tax credits (in fact the reverse) who
have done extraordinarily well over the same period. Equally,
for international companies making decisions as to where to invest,
tax credits are one of the things that they take account of. So
tax credits are helpful.
Q34 Richard Burden: What more do you
think needs to be done? You mentioned Finland. Obviously they
have a different cultural background and the rest of it, but what
are they doing right that we are not?
Sir John Chisholm: That is always
the big question. One of the things which we point to in Finland
is that the role of VTT in Finland—the national RTO—has
been absolutely crucial in the creation of the technology base
which they have exploited with phenomenal success through Nokia
and others. The national understanding of what they could invest
in, and invest in not just the discovery (because there is not
a lot to discover in mobile phones) but actually the innovation
process which gets you to marketable products, is a key part of
that success.
Q35 Richard Burden: What role do you
think RDAs have in encouraging investment? In your own case, you
are part of the central technology belt that Advantage West Midlands
have been promoting, and they are quite bullish about the relationship
of their technology corridors and their cluster strategies and
so on. Do you feel that actually does have an impact in helping
network things to the extent that it will actually lead to an
increase in investment of the kind that you think will be needed
in the West Midlands?
Sir John Chisholm: RDAs can undoubtedly
be extraordinarily helpful in knowledge networking in exactly
the way we have instanced in our paper. If you look for international
comparators, there is no doubt that after the Second World War
one of the things Germany did very well was the regionalisation
of technology; the Fraunhofer Institutes, which were sponsored
by the individual Länders, did an extraordinarily good job
at capturing the innovation potential of the regions, drawing
companies together with the research centres and creating a surviving
economic base from a total mess. So the business of pulling together
a regional cluster is clearly extraordinarily helpful in terms
of economic growth. In this country RDAs seem to us to have quite
an important role to play.
Dr Mears: One of the important
differentiators in RDAs is to have enough technical knowledge.
One NorthEast has created five centres of excellence, and this
is because in order to do the coupling of research from university
into industry it needs to have people with the technical knowledge
to do the bridging. That is what Fraunhofer has got; the Fraunhofer
Gesellschaft has 57 scientific institutes with internal scientists
and they also have associated researchers in universities. They
are technically very expert and that expertise is important for
doing the bridging between companies and universities. So, if
the RDAs try to act as knowledge brokers without the real understanding
to translate the information between universities and industry,
and to help industry to understand how to use the information,
then they will not be as effective.
Q36 Linda Perham: In your submission
you mentioned the concept of open innovation, saying that one
of the weaknesses of the closed model is that internal research
goes straight into products and services and you are not picking
up on something that has already been invented—reinventing
the wheel etc The Government and others are now actively encouraging
more efficient means of technology and knowledge transfers. Do
you think the open model is more effective and, if it is, what
are the main factors that influence its effectiveness?
Sir John Chisholm: I think, quite
clearly, it is more effective. The classic, erstwhile linear model,
where you poured money into discovery at the front end and, somehow,
by a magic process, you got wealth out at the end is widely discredited.
If you look at what has happened in industry, in the 1950s and
1960s many large companies had their own research organisations,
they did their inventing in those research organisations and then
pulled that through into a product. They do not do that anymore,
for the reason that it has not proved successful. Companies now
pay a lot more attention to widely networking and sourcing innovation
from many different quarters. That has proven to be a more successful
model. So success depends upon that open innovation infrastructure
which enables companies to understand how best to develop and
where best to develop their products. That seems to be a much
more successful model.
Q37 Linda Perham: Is there not a problem
with intellectual property rights or patents, if you are going
for that model?
Dr Mears: The closed innovation
model is based on protecting the knowledge, so it is linear, and
it did work well in the middle of the last century—laboratories
like Bell Labs and the invention of the transistor and those sorts
of things. So that was a good model 50 years ago, but, as Sir
John has said, industry has tended to move away from it because—and
this is certainly true of the IT sector in the US—it is
much better to just take technology from other suppliers and bring
the right technology together (you could say stealing the knowledge
but certainly accessing knowledge) to apply it; it is much more
successful, certainly in the IT sector, than having your laboratories
do research on the linear model. In some areas the linear model
has worked quite well until recently. Pharmaceuticals is one area
where it has worked well because it is a linear process: to discover
a drug and go through all the problems of getting it clinically
trialled and proven. Even that now is changing because, with
genomics, pharmaceuticals is much more complex and has to involve
bioinformatics; it is no longer just life science, it is becoming
information science. So even pharmaceuticals is altering and you
can see the drug companies are placing less emphasis on their
own laboratories and more on picking up information via biotechnology,
computational biology, and so forth. The closed model did work
but, increasingly, things are much more complex now, and you need
ways of managing that much more complex information and networking.
Sir John Chisholm: In most economic
activity having a licence is just as good as having a discovery.
Provided you can access the knowledge through a licence and put
that together with other knowledge you have got, you can create
just as viable a product as making a discovery and locking everybody
else out of it.
Q38 Linda Perham: Losing the chance that
the genius who discovers something will still get the credit for
it.
Sir John Chisholm: That is a very
good point. We have in our national psyche the idea that wealth
creation is to do with the lone inventor in a garret in Leeds
who thinks of a brilliant idea and makes a fortune for the country.
That does not work; we should absolutely delete that model from
our mind. The world does not work that way anymore.
Q39 Chairman: It has been suggested that
the American model, as it were, has been in part at least successful
due to the Bayh-Dole legislation where state funded research and
the rewards from the exploitation of that are quite clearly laid
down between the institution, the individual and the commercial
partner who is brought in. Do you think that we need to formalise
IP, as it were, reward allocation in the way that they have done
in the US?
Sir John Chisholm: I would say
that it is not unhelpful but I certainly would not put that as
the cornerstone in the US economic success in innovation.
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