House of Commons - Risk and Reward: sustaining a higher value-added economy

Risk and Reward: sustaining a higher value-added economy - Business and Enterprise Committee Contents

5 Universities, research and innovation

75. The United Kingdom has the competitive advantage of an extremely strong and diverse university sector. Will Hutton told us:

I am slightly concerned about the way we think about universities. Universities are one of the most important assets of the knowledge economy. We do not want to kill the goose that lays the golden egg by thinking of them too much as sources of economic regeneration or sources of wealth generation. They are sources of knowledge generation, first and foremost. I think that should not be compromised.[87]

We agree that universities' core research role should not be compromised. But the United Kingdom also needs to encourage universities' wider role as powerhouses of the surrounding economy. We do not want to engage in debate here about the allocation of funding to different types of research: both blue sky and applied research are important, and we do not doubt that our colleagues on the Science and Technology Committee will in due course look at them both. Here we draw attention to some of the ways in which universities are already working with local and regional public bodies, and local industry, to drive and support innovation, both within academia and within industry. The more people are aware of what is possible, the more likely it is that good practice will spread.

Clusters

76. The existence of high quality research universities can foster clusters of innovative businesses. Sometimes, universities, policymakers and business take a courageous decision to try to develop such clusters, as happened in the Research Triangle Park in North Carolina, which we visited as part of this inquiry, and describe in Case Study 1. Sometimes, as in Cambridge, which we also visited, the growth appears to be more organic, although here too, university institutions provided funding for incubator facilities and new companies.

77. In addition to the clusters in North Carolina and Cambridge, we looked at the cluster of high-tech industry and universities in and around Boston, Massachusetts, and at the cluster in the West Midlands. Although each cluster had developed differently, there were some common themes:

the universities have the confidence to realise their expertise can be built upon without compromising their fundamental mission;
local government or public bodies are extremely supportive; we saw examples of state governments supporting innovation in the US, and RDAs and local authorities playing similar roles in the United Kingdom;
a range of institutions are involved; for example, in the West Midlands, the universities work closely with the RDAs and local manufacturers;
facilities are available for companies spun out from the universities, or attracted into the area, ranging from the ambition of the Research Triangle Business Park to the small-scale incubators in Cambridge;
sources of finance are available, whether through the venture capital funds common in the USA, or the smaller-scale business angels operating around Cambridge;
there are healthy formal and informal networks to support innovators, and to coach them in business skills; and
there are strong arrangements for technology transfer, which offer academics the option of seeing their ideas through to production, but do not rely on individual academic initiative to ensure that promising developments are taken forward.

Case Study 1: Clusters: North Carolina, USA and Cambridge, UK

The Research Triangle Park (RTP) in Durham, North Carolina is one of the oldest and largest science parks in North America. It is 7,000 acres in size, it is home to over 170 companies which employ around 40,000 full-time workers and an estimated 10,000 contract workers. It is located within the Raleigh-Durham-Cary Combined Statistical Area around the University of North Carolina and within which the North Carolina Biotech Center, the Council for Entrepreneurial Development and the North Carolina Board of Science and Technology are all located along with many other business, technology and innovation businesses and services. The Research Triangle Park was set up in 1959 in a conscious attempt to move North Carolina's economy away from dependence on sunset industries, such as tobacco, by building on the local universities' research excellence. It has succeeded far beyond original expectations. The businesses attracted to the Research Triangle are not limited to university spin-offs; established companies have also been attracted to the area.

In Cambridge, UK, a high-tech cluster has grown around the University and brings together the Judge Business School, the Centre for Entrepreneurial Learning, the Integrated Knowledge Centre (IKC) Commercialisation Laboratory, the Cambridge Innovation Park, the St John Innovation Centre and a number of other businesses and services for innovation and entrepreneurship. Many organisations within the cluster are working to foster entrepreneurship, to link R&D and academic work to enterprise, to protect and capitalise on ideas and create an overall environment where the HVA economy can thrive. Cambridge Enterprise works in this area to "commercialise university science for the benefit of society, the UK economy, and to provide a fair return to investors and the University" and is a good example of how business and universities can work together to make the most of science and innovation in the UK, supporting inventors, protecting their ideas and finding the best partner for the development of their work. Cambridge Angels provide venture capital and expertise. The cluster also encompasses the Anglia Ruskin University, which provides vital skills.

78. As well as fostering clusters of excellence, universities can provide facilities directly, or in collaboration with industry. Coventry University told us about the way in which it provided research facilities that could be used by the private sector. This is particularly helpful for SMEs unable to afford their own facilities, which can benefit greatly from access to specialised equipment.[88] In Warwick University we saw a range of institutions where the university worked closely with industry, such as the premier Automotive Research and Development Centre and the Warwick Manufacturing Group.

79. Strong academic institutions can play a key role in supporting valuable clusters of innovative industry. In the best examples, academics, entrepreneurs and public institutions understand and value one another's contribution. It is impossible to mandate such cross-fertilisation between universities and industry, but a great deal can be done to support it, by providing collaborative facilities, by supporting technology transfer and simply by promoting networking. Collaborations of this kind, formal or informal, offer a great deal to all parties concerned, and we have seen that universities, financial institutions and industry can all play an active part in supporting them. Public authorities should be aware of the benefits of this kind of clustering, and should actively look for ways in which they can act as catalysts to encourage it.

Collaborative research

80. The clusters we saw were strengthened by their strong research base, and it is important not to lose sight of the importance of research in the higher value-added economy. Here too, collaboration between publicly funded institutions and industry or charities can pay dividends.

81. It is important to build on existing strengths, such as the United Kingdom's leading position in the medical sciences. Cancer Research UK, the Medical Research Council, University College London and the Wellcome Trust are collaborating together to promote the UK Centre for Medical Research and Innovation. This new centre for biomedical science will have six themes: research innovation and excellence; a national focus for biomedical science; public engagement; effective interface with technology transfer; and finding and developing the scientists of the future.[89] It will be the largest medical science centre in Europe. It is an ambitious project and we very much hope it will be successful. Recognising and building on the research strengths both of the United Kingdom as a whole, and of particular areas, will be essential to sustain a higher value-added economy. In principle we strongly support developments such as the proposed UK Centre for Medical Research and Innovation.

82. Industry can also play a leading role in developing collaborations. QinetiQ is currently attempting to develop a quantum technology lab, and has proposed a centre of excellence (Quantum Technology Partnership or QTP) for manufacturing, composites and for exploration of quantum technology. QTP would be a partnership of private sector and academic organisations supported by the Regional Development Agency and government office and would be developed around an existing centre of expertise at Malvern in the West Midlands. The Partnership will aim to add to the United Kingdom's skills, knowledge and research bases, as well as developing technology solutions using quantum technology. It will aim to encourage collaboration across the academic, private and governmental sectors. Several organisations have already shown interest, including the universities of Birmingham, Lancaster, Oxford and Warwick with Advantage West Midlands, QinetiQ and industrial partners. The partnership aims to bring economic benefits to the region and to the United Kingdom's economy as a whole: competitive advantage; development of the science base; creation of higher value-added employment; emergence of associated high-tech industries and suppliers; interchange of skills and experience across academia and business; training for the next generation of scientists and engineers and attraction of investment to the United Kingdom and in particular to the West Midlands. We applaud the development of centres of excellence such as Quantum Technology Partnership, and its approach of fostering collaboration among existing institutions rather than duplicating effort.

Knowledge transfer

83. The Lambert Review in 2003 concluded that one of the barriers to collaboration between business and universities was a lack of demand from business. It noted "there has been a marked culture change in the United Kingdom's universities over the past decade. Most of them are actively seeking to play a broader role in the regional and national economy. The quality of their research in science and technology continues to compare well against most international benchmarks".[90] Despite universities' increasing involvement with the wider economy, the need for improved transfer of knowledge from academic institutions to the private sector was one of the repeated themes of our evidence. There are several initiatives in place to promote this, such as the Higher Education Innovation Fund, which was praised by witnesses. This Report does not discuss all such initiatives, but concentrates on more focussed interventions.

TECHNOLOGY STRATEGY BOARD

84. The Technology Strategy Board was established in July 2007, bringing into effect a significant number of recommendations made by the Sainsbury Review.[91] It is a non-departmental body that sits within the Department for Business, Innovation and Skills (but previously overseen by DUIS). The TSB funding pot is split between headings—challenge-led innovation, technology inspired innovation, and creating an innovation climate—though witnesses from the TSB told us that it was "much more than just a funding agency" and it had highlighted the "pivotal role we play between government, business and academia in the innovation space".[92]

85. The CBI said that it welcomed the establishment of the TSB (as did others including QinetiQ)[93] and emphasised the need for it to have a wider vision (than just technology as the name suggests) to also include the service sector within business-university collaboration.[94]

86. Research Councils UK (RCUK) "supports the Technology Strategy Board's plans to take a broad view across all the sectors of the UK economy".[95] Mr Iain Gray, Chief Executive of the TSB told that its name was "misleading in the context of one of our key objectives. We are very much moving into that service territory. Of course when we come back to some of the more conventional technologies like manufacturing technology it will not be lost on people that a lot of the big major manufacturing players are actually involved in the service economy and their business model is much, much more than just traditional manufacturing and production […] I see us as an organisation playing a strong role right across the innovation spectrum".[96]

87. Sir John Rose said (some time ago) that it was very important that the TSB "set a strategy for guiding future research and technology", particularly to keep up with other developed nations such as Canada, Germany and the US who have very specific, focused strategies.[97] In April 2007, before the publication of the TSB strategy, NESTA expressed some concern that: "At the moment, it seems to be the answer to everybody's prayers".[98] Although the TSB in publishing its strategy has focused its work, there is still a danger that the TSB may be trying to do too much and is spreading its resources too thinly.

88. The Committee supports the role of the TSB and its re-focus on driving innovation. We believe that the TSB can play a strong role in helping industry, especially developing sectors, to develop a higher value-added economy. The TSB should work on behalf of the Government to help to foster an enterprise culture within which risks can be taken and where fear of failure does not hinder innovation. However, although it is tackling a broad remit with enthusiasm, the TSB is a small organisation. We will be keeping the extent to which its remit is too broad, or its resources are adequate, under review.

89. There are a number of mechanisms currently used for knowledge transfer, for which TSB has lead responsibility. There are currently 24 overarching national networks, known as Knowledge Transfer Networks (KTN), which bring together people from businesses, universities, research, finance and technology organisations to stimulate innovation in specific fields of technology or business application. They provide activities and initiatives that aim to promote the exchange of knowledge and stimulate innovation in these communities.[99]

90. Knowledge Transfer Partnerships (KTPs) are a method of enabling individual companies to obtain knowledge, technology or skills which they consider to be of strategic competitive importance, from the further (FE) or higher education (HE) sectors or from a research and technology organisation. At the time TSB gave evidence to us there were 975 KTPs. KTPs involve an individual from within the United Kingdom's knowledge base (universities, colleges or research organisations) who work within a company on one or more projects. The Government and the benefiting company contribute towards the cost of the project. The KTP Annual Report for 2006/07 reported that companies had an average one-off profit increase before tax of £60,000, an annual increase in profit before tax after project completion of £229,000 and an average investment in plant and machinery needed to realise the outcomes of £193,000.[100] Another of the advantages of KTPs is that the researchers often move into the company for which they have performed research, increasing the skill base and strengthening links between universities and industry.

91. In evidence, Coventry University praised KTPs as a good way of working with industry but also said that sometimes the bureaucracy or fear of working with a university led to a "significant mortality rate".[101] There were significant criticisms of the time it could take to set up such partnerships. Advantage North West also acknowledged the difficulties that some companies experienced entering into a KTP and said that they had seen more success if KTPs were preceded by a "collaboration taster" - such as mini-KTP or Innovation Vouchers.[102] Coventry University suggested combining the application process for KTP with R&D tax credit as a possible way to cut down on bureaucracy and a way to better publicise both schemes to businesses.[103] The university was also concerned that a significant culture change was required within FE and HE to properly exploit the benefits and possibilities of the scheme, though this was within the context of viewing the scheme as very successful, reporting 50% year on year revenue growth through collaboration with business.[104]

92. The CBI commented "that business-university collaboration has much improved since the Lambert Report of 2003",[105] although it highlighted that businesses, particularly SMEs, felt the need for an intermediary; for example, a single point of contact with the university sector to direct their inquiries more effectively.[106] In oral evidence Birmingham and Coventry universities acknowledged the need for a more effective interface between business and academia, also noting that universities needed to improve their internal infrastructure to deal with business.[107]

93. It is clear that there has been significant progress on university-business collaboration since the Lambert Report in 2003. It is also clear that much more needs to be done. Since this is a matter of building relationships between individual institutions and companies, progress will necessarily be slow. We are encouraged by the success of knowledge transfer partnerships, but recommend that the process of applying for such partnerships should be made faster and simpler.

Innovation vouchers

94. The Committee has heard evidence that publicly funded Innovation Vouchers are being used to stimulate innovation by linking up universities and SMEs. Advantage West Midlands described such a system to us as a useful way of allowing SMEs to access research facilities:

You might have heard of INDEX vouchers that we have introduced which were piloted over the last couple of years, and we are rolling that out now. It has been quite a success. Our mission is to try and commercialise some of the science and technology that is buried in some of our universities and research establishments by connecting it with business organisations, so there is a classic example of trying to get businesses, universities, and higher education establishments to interact and collaborate. We are not pretending a £3,000 voucher is going to lead to world-breaking innovative activity but it might be the start of a relationship that does just that, so that is the intention behind that.[108]

The Innovation Nation White Paper announced that DIUS would institute Innovation Vouchers.[109]

95. The Innovation Vouchers have been welcomed by many; for example NESTA argued that:

Stronger links between industry and academia could also further promote higher value-added business activities and innovative thinking among UK businesses. Efforts to boost business demand for university R&D should be stepped up. One exemplary approach is the Innovation Voucher scheme currently being piloted by Aston University. Based on a Dutch model, this has provided 80 high-growth SMEs with £3,000 vouchers which they can use to purchase academic support to improve their innovation capability.[110]

The Committee recognises the vital importance of the small business sector to innovation in the private sector. We therefore welcome the recognition of the success of Innovation Vouchers as one way of achieving a better dialogue between SMEs and universities. We consider their effectiveness should be kept under review, and further support for them be given, if appropriate.

MISSION-LED INNOVATION

96. One way of encouraging greater industrial engagement with both R&D and innovation more generally is to encourage mission-led or mission-driven innovation which was defined for the Committee by NESTA as "problem backwards innovation".[111] QinetiQ defined it more precisely as:

[research] where the objective is to deliver needed and useful capability, which involves innovation. This is different to research initiated by 'principal investigators' which is aimed at advancing specific technologies or areas of science. Mission-driven research provides the opportunity for suppliers to identify new solutions to end-users' problems, whilst maximising the economic leverage achieved from innovation taking place within the supplier base.[112]

97. QinetiQ and the Society of British Aerospace Companies (SBAC) used the same illustration comparing the UK with the US system, which they praised for its ability to encourage innovation:

The higher percentage of mission driven research in the US means that more of the capabilities generated in undertaking the research are created in the supply base, and are therefore more directly exploited in subsequent delivery of the solution. This explains the greater pull through of research into products and services that drive the US economy. The UK does not have an equivalent magnitude of mission-driven programmes and this has an important effect on innovation in UK industry.[113]

The figure, which is reproduced in the evidence,[114] shows that 76% of research in the US is mission driven, in comparison with 50 % in the United Kingdom.

98. Mission-led research is a defining characteristic of the work of DARPA, which the Committee visited in July 2008. Case Study 2, below, provides a summary of DARPA's work.

99. The Committee notes that one of the funding streams of the TSB is to invest in challenge-led (or mission-led) research. The TSB told us in evidence that it is funding the use of the challenge-led approach which "is, by its very nature, multi-disciplinary […] a real way of pulling in together multi-function and multidisciplinary subjects all working together […] one of the key differentiators again between the way the Technology Strategy Board is approaching the innovation agenda rather than just a more conventional technology push type of approach".[115] The Committee is encouraged that the TSB has adopted this as one of the main methods for its research funding. The TSB has a total budget of £711 million for the period 2008-2011. Funding from other public sector sources will increase it to something over £1 billion. Approximately half of that will be devoted to challenge-led innovation—perhaps £500 million over three years. In contrast, in 2006-07 alone, DARPA's budget was $2.3 billion.

Case Study 2: Defense Advanced Research Projects Agency (DARPA)

DARPA's mission is to "maintain the technological superiority of the US military and prevent technological surprise from harming our national security by sponsoring revolutionary, high-payoff research that bridges the gap between fundamental discoveries and their military use". Its programmes (largely driven by its Director, Dr Tony Tether, and its programme directors) fall into three broad categories: high-risk, high-payoff concepts, such as stealth technologies; critical military programmes, such as secure and reliable communication networks; and new military capabilities and solutions to key military problems. DARPA is characterised by its work culture which is based on a small, flat and flexible organisation (240 staff, of which 120 are technical), with high turnover of staff (with 3-5 year contracts) with the ability to hire highly skilled scientists and engineers. It also has substantial autonomy over its large budget ($2.3bn in 2007-08), and projects focussed on a tangible end goal (prototype rather than report). Management are focused on the overall goal of good stewardship of taxpayer's money, and a complete acceptance of failure, with lessons learnt, if the payoff of success is high enough. A lot of work is outsourced to science and technology organisations and laboratories, with DARPA staff acting as programme mangers. DARPA claims a number of successes including the M-16 rifle, stealth fighters, body amour and ARPANET since its establishment in 1958.

100. The Committee considers that mission-led projects can encourage greater innovation. However, as we saw at DARPA, such approaches work best in a culture which does not fear failure and which is not subject to obsessive accountability requirements. The Committee believes this method must be embraced and encouraged more by the Government and recognised in future policy formulation. Innovation will, by its very nature, always be elusive in a bureaucratic culture.

87 Q 196 Back

88 Qq 222, 223 Back

89 UK Centre for Medical Research and Innovation pamphlet Back

90 Foreword of Lambert Review of Business-University Collaboration: final report Back

91 HM Treasury (2007), The Race to the Top, A Review of Government's Science and Innovation Policies conducted by Lord Sainsbury of Turville; HM Treasury (2006) Back

92 Q 499 Back

93 Ev 227 [QinetiQ] Back

94 Q 431 Back

95 Ev 241 [Research Councils UK] Back

96 Q 503 Back

97 Q 116 Back

98 Q 161 Back