Examination of Witnesses (Questions 160
TUESDAY 17 OCTOBER 2006
Q160 John Thurso: Another example
of off-shoring, particularly if you look at the example of the
call centre, is that those were jobs in the South East of England
which then relocated to more distant parts of the United Kingdom,
like Thurso, and then relocated to India or wherever it might
be. There is an inevitability to a certain extent. It is not that
which is my question, my question is: Does this mean that it is
going to be the South East and London which benefit from off-shoring,
whereas it is going to be the regions, the more further away areas
of the United Kingdom, which are going to bear the brunt?
Mr Radley: I think to some extent
that has already happened. If you look at the developments that
have taken place in the last 10 years and before that, we have
seen significant increases in employment and also in the level
of GDP within the southern regions in the countryI think,
in many cases, benefiting from their proximity to London. We have
started to see an improvement more recently in some of the northern
regions of the economy but it is worrying that they have become
extremely dependent on the public sector. If you look at some
of the northern regions of the country, significantly more than
half of their GDP is from the public sector. They have also struggled
to create highly skilled jobs. In many cases, most of the skilled
jobs are in the public sector and the private sector has really
struggled. We need to put more effort into developing innovation,
into creating highly skilled jobswhich are going to compete
in world markets in the futurein all parts of the country,
really raising the standards of performance of other regions in
Q161 John Thurso: You would see going
to the root of innovation and high wealth jobs in the regions
as being the answer to that.
Mr Radley: Exactly. Certainly
there is an encouraging story to tell. Our recent survey of members
did find that around about three-quarters of them, all over the
country, were putting more emphasis on innovation and had forward
plans to do that. In many cases they found that assistance from
government, in terms of developing links with universities and
collaborating with other organisations, was very effective. Where
we struggle sometimes is that the RDAs can be rather narrowly
focused, and they are not as effective at brokering relationships
outside their regions. Because of the targets they have to fulfil,
they tend to be very inward focused. If we really want to drive
up our performance and innovation, that is something we need to
Q162 John Thurso: This is a subject
that particularly concerns me, because the major employer in Caithness
is Dounray, which is decommissioning, and in 2012 the number of
jobs drops off the cliff. Our goal is to replace not simply the
number of jobs but jobs of the same quality, so that we can retain
the skilled workforce that we have. One of our problems is in
getting the enterprise agencies to understand that a clear resource
requires to be put to look outward and to bring people in from
outwith. I am interested that your experience in England with
the RDAs is a similar one, that they tend to be inward focused.
Should we be doing more as a country to coordinate inward investment
in specifically targeted ways, so that they are geared around
innovations such as, for example, marine renewables?
Mr Radley: I think it goes beyond
just coordinating inward investment. I think that is an absolute
must. The situation we have seen in recent years, with different
inward investment agencies from different parts of the country
competing with each other around the world to secure investment
into the UK, has been a nonsense. We have set out a really muddled
message to people who are considering investing here and we have
a wasted a lot of resources. We need to see more coordination
in the inward investment area, but it is not just there. In the
organisations that have responsibility for revitalising the regions
and driving up our capabilitiesand I am thinking particularly
in the skills areathere is a lot of fragmentation generally.
We need more coordination and simplification to make sure that
the bodies work together effectively.
Q163 Mr Todd: There is a stereotype
that Britain is good at innovating, in the sense of producing
new ideas and developing research, but poor at implementing that
in product for the market place. Is that a stereotype which has
Sir George Cox: Yes. Having started
my life as an aerospace engineer, I spent most of my life in what
became known as information technologyan industry which
did not exist when I got my degree. We have had successes. I can
point to some good companies in the area but where are our Googles?
Where are our Microsofts? Where are our Dells? This evening I
am going to the British Computer Society's 40th anniversary. A
few years back I gave an inaugural speech at 50 years of commercial
computing in this country. We were at the very forefrontthe
very forefrontbut we have not exploited that to the extent
that we should have done.
Q164 Mr Todd: Of those three examples
you have given, none of them one would quote as being at the cutting-edge
of technology development.
Sir George Cox: Exactly, but it
is the people who exploit the cutting edge, not the people who
produce it. I gave the example earlier of eBay. It is the people
who see the opportunity that technology opens up for them, rather
than the originator.
Q165 Mr Todd: All of them started
as SMEs essentiallyvery smalland in the case of
Microsoft almost a garage business.
Sir George Cox: They did indeed.
Q166 Mr Todd: How do we move SMEs
from being people with a great idea to being people who take global
advantage of that idea?
Sir George Cox: That is one of
the things I tried to tackle in my report. You are absolutely
right, too often we talk about innovation and getting the economy
more vigorous and we concentrate on start-ups. Start-ups are just
part of this. The window-cleaner who quits his company and buys
his own van and ladder: jolly good luck to him, but he does not
add anything to the economy. We need to start companies which
form and then grow. For some reason many of the companies we start
just do not grow. We run out of ambition. We sell out too early.
Q167 Mr Todd: They are lifestyle
Sir George Cox: They are lifestyle
businesses. It is what I have heard referred to in the venture
capital business as the "old rectory syndrome": as soon
as the founders can afford the house they have always wanted,
they run out of ambition. I have said that if Bill Gates had been
born in this country, now he would be running the biggest software
company in Guildford, and that is it. It is not just a stereotype,
it really is true. We have to get our companies to be more ambitious
and recognise the potential and get them carrying on. That is
one of the things I tried to tackle in my report.
Q168 Mr Todd: The examples you have
given are all American. Is that not a cultural issue?
Sir George Cox: Yes, it is a cultural
Q169 Mr Todd: I worked with American
companies before I did this job and there is a different approach.
Sir George Cox: There is. It can
be broken. Let me give you an example of entrepreneurship which
I admire enormously. If two or three lads out of university had
come to me a few years back and said, "We want to start a
fruit juice company" I would have said, "Forget it.
Don't be daft. That is a crowded market dominated by big suppliers
serving big customers. That is the dumbest idea." But these
guys set up Innocent drinks, and they have broken through
the market. The nice thing about them, if you talk to them, is
that they are still full of ambition to grow the business. In
almost any field, if you can be innovative enough, you can make
it work. You are quite right, the number of big successes that
come from start-ups... I know it is partly because the big companies
cannot move swiftly enough and, again, reach a sort of plateau
in terms of complacencyand I do think that is a pattern
you see repeatedbut it is getting people to recognise that
potential and to have that ambition. If there is one thing I found
in researching my report, it was that poverty of aspiration is
at the heart of thisnot naturally but at an individual
company level. They are just not aspiring enough.
Q170 Mr Todd: What do governments
do about that?
Sir George Cox: It is difficult
for a government to change a cultural issue like that. If you
think what a government can do, there are a number of things which
are required: the regulatory environment, the economic stability,
the highly skilled workforce. There are things like that. It is
quite difficult to get beyond that and to do different things
with companies. I hope that the kind of things I have put forward
in my report will address that, though with many of the things
in my report the recommendations are not in the hands of government
to do. When you talk about the education system and you want universities
to broaden what they teach and to get more cross-disciplinary
courses, you cannot say, "Okay, let's get the government
to do something about that." When you talk about getting
companies exposed in programmes where they can sample design and
they can use it to be encouraged, it is very difficult to do it
centrally. When I was on the Board of the Institute of Directors
I found that the amount of influence you can have with a megaphone
from, say, Pall Mall or Centre Point is very limited. That is
one reason why a lot of the initiatives have to be driven locally,
out of self-interest. If you go and talk in the North East, you
do not say, "This is part of a national programme."
That kills it. You say, "Come on, this is the kind of thing
that gets the North East on the map." That is the challenge
in doing it. There are a limited number of things that government
can do. In my report, the one thing that was in the hands of government
was the R&D tax credit system, which, to the great credit
of HMRC, they acted upon. But it is quite difficult.
Q171 Mr Todd: Looking at intellectual
property rights, which can be seen as a way of imposing monopoly
power in a market placethe Gower Review is looking at this
at the momenthow do we strike the right balance there between
protecting the rights of the innovator and ensuring that the benefits
of that innovation are then shared, very often by exactly the
businesses you listed at the start, so that they can exploit them
Sir George Cox: I did not go into
that in my report, not because it was not important but partly
because it was already being looked at and partly because we surveyed
medium-sized and smaller companies as to what the innovations
were. With selected exceptions, that was not the big issue. In
some fields it is very important, in many others it is not. It
really is not.
Mr Radley: I would very much agree
with that answer and I would like to draw attention to some other
areas where government can play an important role. One of those
is public procurement. Ultimately, it is up to companies to spot
the opportunities and to do what they need to do to grow their
companies, to become more innovative, to add more value. If you
look at some of the examples around the world, particularly the
United States, the government can be a very important player in
this, in terms of providing the first major order for the company
that really gets them to enter the growth phase and move from
being a small company to being a major player. We have picked
up from companies that there is a lot of good stated intentions.
We have had the innovation review, the Kelly review, various action
plans from the Office of Government Commerce. Public procurement
is still very bureaucratic, risk averse and slow. Many companies
are able to offer products that are well ahead of what the government/the
customer is seeking for them. I think there is a lot more we could
do going down that road.
Sir George Cox: May I come back
on that point. Public sector procurement generally could be a
big force for innovation. At present it is just the opposite,
with a few honourable exceptions. I have found from my own experience
of running a big technology company when providing a submission
to a big public sector procurement requirement, that you put in
a response to an over-specified, wrong question, for which you
have to come up with the cheapest solution. Enormously frustrating.
It really is. I can remember one bid we worked onand I
will not go into the specificswhich took ages. It was a
terrific bid. We spent £4.5 million on the bid and we had
a partner in who spent about the same. I have no doubt, looking
back, that it was the right solution. The night before you submit
it, you come to the key issue. You sit down there with your partner
and you come up with the eventual pricingthis was a PFI
bid, so it was on a transaction basisand it is not: What
is this worth? It is: What is our competition going to come in
at? It is like a game of poker. With that particular bid, we came
in at the same level as the main competition. It went to a third
supplier who did not understand the problem: they came in at about
two-thirds of the price, they got the job, and it collapsed a
couple of years later with great loss to them and the public sector.
It was outrageous. It was absolutely outrageous. What a way to
buy. I can give you example after example of this. You speak to
companies about innovation and a number of design companies say,
"We've got this great design here, where do we put it?"
One company said, "We've designed a new area for the patient
area in hospitals." It was tremendous. It was more than just
a bed: it enabled the patient to sit themselves up, get themselves
out of bed, lower the bed, get a drink of water, turn the television
onall the things for which you would press the button for
the nurse. They abandoned it. I said, "Why?" and they
said, "Where do you go with it? If you go to a health authority,
they put you on to the man who buys beds. You go to him with the
idea, he says, `Tremendous! How much is that?" and you say,
"£3,000" and he says, "No, no, I buy beds
for £800. If yours was £850, I could stretch the point."
So you say, "Look at the quality of the patient state"
and he says, "Forget it." "Look at the saving in
nursing time" and he says, "I'm not there to save nursing
time; I am there to buy beds." You hit this. You are quite
right about America. You can see it in so many fields. You are
not about featherbedding your own industryyou just cannot
do thatbut if the public sector were a demanding buyer
you would generate innovative companies which would supply markets
Q172 Mr Todd: In your report you
commended the Design for Business Programme.
Sir George Cox: Yes.
Q173 Mr Todd: What else can be done
to boost R&D and improve innovation and design? That seemed
to be successful on a small scale.
Sir George Cox: Yes. When we looked
at the programme, there were two things. One was the field where
there is a financial incentive, which was R&D tax creditson
which I made specific recommendations, two of which have been
taken up. The biggest one was to change the regime which was applied
and get the Revenue to understand that this was an incentive scheme
to be promoted, not an avoidance scheme to be policed (as I put
it). Commendably, they have done that, and we can give examples.
As I say, this is an example where you are seeing a different
attitude to promotion, so I think that is a good one, and that
is for the part of innovation which is dependent on R&D. The
other one was to look at the Design for Business Programme,
which had been originated long before I went to the Design Council
and had been pioneered with RDAs to very good effect. I looked
at how you could roll that out: How could you change that from
a couple of hundred case studies to several thousand? We put forward
a programme which is now rolling forward. I think eight of the
nine RDAs are sold into it. I have had a word with the Deputy
First Minister in Scotland and they want to roll it out there.
The reason I went for that figure was that we thought it would
be about the biggest the design industry could support. I have
found that the thing which tends to alter the attitude and understanding
of small companies is the behaviour of other companies in the
area. My view is that if you get 6,000 case studies out there,
right around the country, of companies who have not just used
design to change their business but have changed their thinking,
so that they are not just a "one-off innovation" but
are going to keep innovating, I think that will have an effect.
I think on the scale we have planned hereand it is being
rolled outit will have an effect.
Q174 Mr Newmark: If Bill Gates had
been born in Guildford, I think he would be a lab technician.
I think it is a cultural issue. The UK plans to reach 2.5% investment
in R&D to GPD ratio by 2010. Given that the US and Germany
are already above this threshold and that the Lisbon Strategy
has set a target of 3%, is our target ambitious enough?
Mr Radley: If you look at the
Lisbon Agenda you have to say that there are some very big aspirations
there, but very limited delivery across Europe. It is absolutely
vital that we do look to drive up levels of expenditure on R&D.
That can both be in the public sector but also in the private
sector as well. I think we need to look at whether the money is
being spent effectively. For example, if you look at public spending
on R&D, it tends to be extremely fragmented. We have high
hopes of the proposals to make the Technology Strategy Board an
arms length body that we are going to see a lot more coordination
here, in terms of the technology strategy brought, bringing together
all the different pockets of money that the Government spends,
bringing it into one large pot that business can access and leverage
their own money to go in with it, and really start to make a difference.
In the private sector, obviously driving up levels of R&D
is important, but in many cases that is not the whole story about
delivering innovation. In many cases, innovation is developing
new services. Even in the manufacturing sector it can be about
developing new and improved services. That does not have to be
necessarily highly R&D intensive. We have already talked a
lot about design. We have found a lot of manufacturers are putting
more emphasis on that. Again, it does not need to be that R&D
intensive. In many cases we are also looking at the fact that
we need to improve substantially our links with universities.
We have found a lot of companies are doing that, but we can do
that far more effectively. Yes, we do need more R&D, but there
are a lot of other things we need to do too.
Q175 Mr Newmark: Do you think it
should be across the board? Twenty-five years ago, I did a study
with Michael Porter, when I was at business school, and we came
to the conclusion that there were some areas, like advertising,
where we had a great expertise and so therefore we developed a
cluster of advertising. You can go to Finland, where they developed
expertise in mobile phones. Rather than spreading R&D flatly
across the board, why not let it be driven into much more narrow
silos? Is that a better way of going about it? Is that a more
effective way of doing R&D in terms of where money should
be going to?
Sir George Cox: I think the real
issue with R&D is not trying to give more push to it and to
drive it, but it is getting the pull. R&D should be driven
out of self-interest. Companies should invest in R&D not because
they are part of a national programme, but because: "If I
invest in this, I am going to have a winner." That is what
we are trying to get across. It is the same with education: if
companies were demanding these skills as well as supplying them,
then we would change them. It is the demand side.
Q176 Mr Newmark: Is government a
Sir George Cox: Government is
a facilitator. Things like the financial incentive count towards
it, and a different attitude towards public sector procurement.
In relation to public sector procurement, I would like to see
the National Audit Office and the PAC, when they get something
in, asking, "What more innovative ways did you look at doing
this?" but also accepting, when you innovate, that there
is an element of risk. One of the problems we have in the public
sectorand I have great sympathy for itis that when
it goes wrong, as innovation does at time, heads must roll. It
is outrageous. The penalty for failure is far too strict.
Q177 Mr Newmark: That is a cultural
Sir George Cox: It is a cultural
thing. But I do think we could alter this. I have spoken to people
at the NAOI have not spoken to the PACand the question
should be asked, when you come up with something, "Did you
look at the problem more widely? What other solutions did you
look at?" When you get a submission which has come from a
company which is too small to provide it, why do you not put them
in touch with another company and say, "We love this. We
love your idea of a bed but we are not going to order it from
a company your size. However, if you were to get into bed with
a bigger company, like So-and-So, and come back to us, we could
do it." If we had that part of it then you would get more
Q178 Mr Newmark: Do you think the
EU has any role in stimulating innovation and R&D? What role
do you see the EU has versus the UK Government, especially in
those areas which are perceived as slightly weaker, like IT hardware/software
Mr Radley: I think the EU can
have a role. Particularly where we are looking at emerging industries,
for example some of the energy efficient industries, some of the
low carbon technologies, low carbon industry sources. I think
it is a good idea to have a common strategy there to move forward
and, rather than have lots of small markets, have one major market
which is really going to push innovation.
Q179 Mr Newmark: Give me an example
of what you mean by that.
Mr Radley: Wind, I think, is no
longer an emerging area, but there are lots of other examples
of micro-generation where we could see opportunities to develop
new industries. Making carbon capture and sequestration commercially
viable is a priority.