Memorandum 79
Supplementary submission from the Royal
Academy of Engineering
1.1 The Royal Academy of Engineering, along
with six of the major engineering institutions, submitted a memorandum
to the main call for evidence from the Committee. This response
to the Committee's supplementary call for evidence is based on
work that we have subsequently carried out in partnership with
the Royal Society and the British Academy, precipitated by Lord
Drayson's speech to the Foundation for Science and Technology
on 4 February and has been prepared by the Royal Academy of Engineering
with the endorsement of the same engineering institutions and
organisations, a full list of which is included on the title page.
1.2 A speech by Rt Hon John Denham, MP, Secretary
of State (DIUS), at the Royal Academy of Engineering on 19 February
built on Lord Drayson's speech by catalysing a debate about the
balance of investment in science and innovation to favour those
areas in which the UK has a clear competitive advantage. The Secretary
of State also defined the nature of the debate as not whether
a balance should be sought but how it should be achieved.
1.3 Ministers appear to wish to take advantage
of a decade of investment in the science base by encouraging the
commercialisation of the scientific ideas and concepts produced
by it. All political speeches to date on the subject have stressed
that this vision is about reaping the benefits of research already
funded and that the commitment to curiosity-driven research funding
remains unaffected.
1.4 We believe that there will always be
serendipitous economic benefit from some blue sky research conducted
primarily for the purpose of the pursuit of knowledge. However,
the scale of the challenges we face as a society and economy calls
for much closer alignment of research with clear objectives and
better processes for creating products and services from ideas.
In general, there is a funding gap from the point where research
ideas move out of universities through to their becoming commercially-ready
technologies that industry sees as sufficiently risk-free to take
on. Translational research bridges the gap between pure research
and applied research and much has been achieved to improve this
transition, particularly in the biomedical fields. However, the
bridge between applied research and commercially exploitable products
and services remains weak.
1.5 One of the biggest obstacles to getting
innovation moving "up the chain" is the way the stock
exchange and investment community behave with small and medium
size technology companies in the UK. In the USA, where small companies
grow into big companies, this happens because of a more tolerant
and supportive investment philosophy (coupled with easier flow
of funds and Government support through schemes such as SBRI).
This has never been the case in the UK and even the better Vice
Chancellors are focused on relatively short-term investments with
IPO or trade-sale. Similarly, investors—especially the institutional
investors who effectively determine the fate of listed companies—have
very little tolerance of market conditions or irrespective of
whether a company is managing itself well and will put pressure
on management very quickly or even push towards a trade-sale (and
the disappearance of the growing technology company). This is
very different to the USA experience for technology companies.
These factors are probably a bigger issue than the university
technology transfer gap which, in recent years, has improved greatly
with the help of funds such as HEIF and the TSB schemes.
1.6 While our comments make generic points
it is also important to note that innovation models can differ
between engineering sectors. If Government's overarching goal
is to improve UK economic performance as part of an active industrial
strategy, policy needs to be flexible enough to reflect these
differences.
2. What form should the debate or consultation
about the question take and who should lead it?
2.1 In the area of pre-commercial technologies,
there are two forces at work. Researchers in universities are
keen to push their technologies out of the lab and into the commercial
world where they can become or contribute to commercial products.
At the same time, commercial companies are looking for emergent
technologies to fulfil particular needs. It is an area where solutions
looking for problems and problems looking for solutions could
be better managed to converge productively.
2.2 Government policy needs to be made with a
much broader understanding of how industry makes its investment
decisions. There would be significant value in the establishment
of an office of technology assessment, drawing on the expertise
in Government departments, the TSB and other bodies and industry
to promote understanding of and provide advice and support for
the productivity of UK based research and development activity.
It would be important that this function were at the core of the
responsible department so that its expertise is fully embedded
in the policy-making process.
2.3 Industry, by and large, is well focused
on the technologies it needs and wants to pull through. Universities,
however, are less focused on the potential commercial uses of
their discoveries. It therefore follows that the debate should
be led and fully informed by the industries and business sectors
which seek to make use of and commercialise the fruits of academic
research.
3. Whether such a policy is desirable or necessary
3.1 The UK has often been justifiably characterised
as being good at creating scientific ideas and concepts from pure
scientific research, but poor at converting those ideas into commercially
valuable products and services. This view is often illustrated
by reference to MRI scanners where the initial "discovery"
was British, but development of the product was done in the USA.
There are many such examples.
3.2 Historically, these fruits of academic research
were developed into products by large corporate labs such as those
that were owned and operated by companies such as IBM, Xerox and
General Electric. In the UK, these large corporate labs are now
very few and far between and the mechanism for de-risking development
has shifted towards many high-tech university spin-out companies
funded by venture capital to the point where they become an attractive
acquisition target for large corporations.
3.3 In the absence of large corporate labs,
support for this stage of the innovation process—taking
ideas from the pre-commercial research stage through to fully
demonstrated products and services—is essential to reaping
the benefits of already-funded research. It therefore follows
that such a policy is both desirable and necessary if the UK is
to improve innovation performance.
4. What are the potential implications of
such a policy for UK science and engineering, higher education,
industry and the economy as a whole?
4.1 Any improvement in the rate at which
ideas created by UK publicly-funded research can be converted
into wealth-creating products and services will directly benefit
industry and the economy, and indirectly benefit the UK Exchequer
in terms of additional tax receipts.
4.2 Engineering research is usually at the more
applied end of the research spectrum, closer to the development
of commercial products and services than is fundamental science
research. Interaction between industry and engineering researchers
as part of the process of developing scientific ideas is likely
to increase the stream of industrial sponsorship for directed
research.
4.3 Curiosity-led research has been, and
continues to be, the engine behind the creation of ideas suitable
for development into wealth-creating products and services. Research
Council spending on fundamental scientific research must be preserved
if any policy to improve the conversion of scientific curiosity
into wealth creation is to be sustainable.
4.4 There will always be serendipitous economic
benefit from some blue sky research conducted primarily for the
purpose of the pursuit of knowledge. However, the scale of the
challenges we face as a society and economy call for much closer
alignment of research with clear objectives and better processes
for creating products and services from ideas. While curiosity-led
research is undoubtedly the engine behind the creation of scientific
ideas, unless the whole pipeline from fundamental research to
commercial products and services is considered, the benefits of
any policy to direct academic research for the economic benefit
of UK plc will likely be lost.
4.5 In general, there is a funding gap from
the point where research ideas move out of universities through
to their becoming commercially ready technologies that industry
sees as sufficiently risk free to take on. Translational research
bridges the gap between pure research and applied research and
much has been achieved, particularly in the biomedical fields,
to improve this transition. However, the bridge between applied
research and commercially exploitable products and services is
still weak.
4.6 Additional funding for development in
this area, between academic inquiry and commercial readiness,
is likely to produce economic benefit more quickly than at any
other stage in addition to ensuring that some ideas make it through
this funding "valley of death" that might otherwise
falter.
4.7 This is an area where the Technology
Strategy Board is active but is limited by the funding available
to it. The spread of technology areas that the TSB works across
potentially leads to its funding being spread too thinly to have
real impact in certain key areas. In order to protect or even
build on the value of investment by the Research Councils, the
TSB's budget should arguably be of the same order of magnitude
as the Research Councils' as a whole.
5. Conclusions
5.1 The speed and effectiveness with which
scientific advances can be transformed into wealth creating products
and services can and must be radically improved. The raw material
for this innovation process, the scientific research, is available
and ripe for commercialisation. Only the current limitation of
the innovation process and risk that companies need to overcome
stand in the way of UK plc reaping the full benefit of a decade
of investment in the science base. Government action to help and
encourage this faster and more efficient transfer of knowledge
and innovation should now be prioritised to give the UK the technological
base to engineer its way out of recession.
April 2009
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