Examination of Witnesses (Questions 41-80)
PAM ALEXANDER, PROFESSOR RICHARD BROOK, PROFESSORY
NIGEL PERRY AND PROFESSOR KEITH RIDGWAY
20 DECEMBER 2010
Q41 Chair: I welcome you here
this afternoon, and thank you particularly for coming on what
is clearly going to be a difficult travel evening. We shan't keep
you overly long. Thank you very much for attending.
As you know, the Committee is looking at the
Government statement on technology innovation centres, which stems
from the work of Hermann Hauser and James Dyson and the advice
that was given to the two Governments. We're looking at how that
fits in to the British context, and we're particularly looking
at the Fraunhofer institutes in Germany and the appropriate model
to develop here in the UK. We've been looking at this for a little
while and have taken evidence in Germany, but your evidence is
critical to this inquiry.
First, I invite you all briefly to introduce
yourselves, for the record.
Pam Alexander: I am Pam Alexander,
chief executive of the South East England Development Agency—SEEDA—and
am speaking for the eight RDAs outside London.
Professor Brook:
I am Richard Brook, president of AIRTO, which is the Association
of Independent Research and Technology Organisations, representing
some 40 existing RTOs, PSREs and similar organisations.
Professor Perry: I'm Nigel Perry,
chief executive of the Centre for Process Innovation, which is
located in the north-east of England, and its nascent TIC, which
is focused on the process industry.
Professor Ridgway: I'm Keith Ridgway,
research director and one of the founders of the Advanced Manufacturing
Research Centre—AMRC—at the University of Sheffield.
Q42 Chair: Thank you very
much for that.
Why do you think that it's only now that something's
happened, when this idea has been around for some considerable
time? When I was first on this Committee in the early 1990s, people
were talking about the need for us to look at the Fraunhofer model.
Professor Brook:
AIRTO has been saying that we should have something like this
for as long as I can remember—20 years or so. I think there
has been a perception about the key components of the infrastructure
[for achieving economic growth from research]—on the one
hand industry and on the other hand universities—and if
you enable them to come together you will get economic growth
as a result. It has not been acknowledged that there is a task
to be done between the research and the innovation and taking
it into commercial exploitation, and that requires a special set
of skills and some focus and dedication to achieving the industrial
output as a priority. We have been advocating this kind of approach
for a long time, comparing it with what happens overseas, particularly
in Germany, but I don't think the message has been taken. Last
year Lord Mandelson lighted upon the Fraunhofers. He took the
message seriously and instigated the Hauser review, and now I
think it's moved forward a long way in 12 months.
Professor Ridgway: We recognised
20 years ago that it was necessary. The universities have had
a system of appraisal and monitoring that has been a bit averse
to work in the industrial sector. It rewarded publication and
pure research rather than work within industry. That has been
a factor.
Professor Perry: CPI was set up
seven years ago. We had Fraunhofer on our pre-incorporation board,
and it's only because of the aggregated success story that CPI
has become over the past seven years that it has actually been
able to be exemplified in this field. We were fortunate to have
Lord Mandelson come and see us. We also made quite a significant
input to the Hauser report, so I think we've had a practical demonstration
for the first time instead of a theoretical explanation of what
is needed. You can come and look at CPI and take it to bits and
understand how it operates.
Pam Alexander: There's also an
increasing focus on the need for high- growth companies to drive
jobs and wider economic development. The NESTA report, for example,
which demonstrated that between 2000 and 2008 6% of the highest
growth companies produced half of the jobs, has meant that that
has become a real focus for both the previous Government's and
this Government's approach to driving economic development.
Q43 Chair: The last time we
as a country dabbled in this area was with the Faraday Partnerships,
and things didn't quite work out as planned. What lessons can
be learned?
Professor Brook: If I can start
again, having run one of the first Faraday Partnerships. It started
up in a very uneven way. In the early '90s we had Post-graduate
Training Partnerships, which were one component of the mix. We
then had EPSRC come in with some ring-fenced research money to
act as a means for the universities to become involved. The Department
of Trade and Industry at the time did not find the budget to provide
what would be the core funding, so that started up quite a bit
later. Then, when the ring-fenced research council money was used
up, the research councils said, "The Faraday Partnerships
can address the normal research grant application process and
be peer-reviewed along with everybody else." Progressively,
as industry wanted to pull the research towards the applied end,
the scores that were being obtained from the peer review system
progressively got less, because it was not really the glamorous
research that industry wanted doing. There was not a particularly
well-defined governance model, so a number of the Faraday Partnerships
had different forms of governance. Some were run by universities
and some were run by intermediate organisations. Most of them
were bottom up, responding to an open call for proposals, rather
than top-down and strategic. I don't think there was support for
the brand development in the way that is being called for now.
There were quite a number of things. It was a valiant effort,
but it was too piecemeal and things didn't happen in a properly
synchronised and co-ordinated fashion.
Professor Ridgway: That's very
true. They didn't take the centre sufficiently out of the universities
system. It was just going for basically the same funding. Funding
was provided for a commercial director for the Faraday, and very
little else when it got into a steady state. People went back
to the funding mechanism, as has just been said, but it didn't
differentiate.
Q44 Chair: Let me push you
on that. Many of the Fraunhofer institutes appear to have a professor
from a university leading a piece of research. What makes it different?
Professor Ridgway: The big difference
is the funding mechanism that the Fraunhofer takes, which is roughly
a third from the state, a third from the region and a third from
industry—that's the model. It does not have to go back to
pure basic funding to earn its income. With the Faradays, the
problem eventually was that they had to go back to the EPSRC to
get more funding. The Fraunhofers are quite safe in their funding
longer term, with those three separate pots of money to take.
Chair: We'll no doubt come to that later
on. Does anyone have anything else to add?
Q45 Graham Stringer: Professor
Brook, what happens to all these institutes if the TICs are a
great success? What happens to the existing centres?
Professor Brook: It's very important
that the new centres fill in gaps in what currently exists, otherwise
we would have the crazy situation of duplicating some of the expertise
that already exists in the existing centres. Therefore, the TICs
need to be able to link up the expertise and capability of the
existing centres to deliver something that, at the moment, is
not possible.
Q46 Graham Stringer: Who would
make sure that there wasn't overlap? Whose responsibility would
that be?
Professor Brook: That would be
by taking a top-down view. One of the things that the Technology
Strategy Board wishes to do, in my understanding, is to understand
the map of capabilities that already exist and to identify—against
the UK strategic needs—what is missing. The TICs should
fill in and provide what is missing.
It may well be that their main role is to connect
up a number of existing organisations in a hub-and-spoke model
and connect them more effectively to the supply chain.
Q47 Chair: Including some
of your members, presumably.
Professor Brook: Yes, I would
think so. It's very clear that the money should not be used just
to continue funding what's already being done. The TICs need to
fill the gaps and address what's missing.
AIRTO's members already do quite a lot of what's
needed. They don't have the core funding though. What then happens
is that they behave very commercially. One of the issues is how
you engage small businesses. Without the core funding, any organisation
that is striving to be sustainable will turn its attentions to
large companies, which can afford the research and the work that's
being done. It will also turn its attention more to services and
things that industry is prepared to pay for without risk.
A number of AIRTO's members do not do as much
research as they used to, even though they would like to, because
they do not have the means to fund it. That is where the core
funding needs to come in—that is what the Fraunhofers have
got, which UK organisations don't have.
Q48 Graham Stringer: Professor
Ridgway, AMRC attributes its success to having a very clear vision
and, I suppose, objectives. Can you elaborate on that?
Professor Ridgway: It was clear
when we started working with Boeing, Rolls-Royce, BAE Systems,
and so on, that the vision was to create wealth for all—for
everybody within that partnership. In the AMRC, the university
doesn't take out of the partnership. Within it, the money generated
from partnership contributions and research projects funded by
industry stays within the AMRC. But we have a very clear vision
that everybody who is there is trying to improve their performance,
get more work, take a larger share of the supply chain, and become
a better supplier to somebody else in that supply chain.
Q49 Graham Stringer: I'll
ask a similar question to Professor Perry: what is the key to
the CPI's success? You have set up 11 spin-off companies. Can
you explain how you have been so successful? Are there lessons
that other people could learn?
Professor Perry: Yes. I think
a combination of a number of factors has led to that success.
First off is that we understand that innovation is a market-led
process—it is an investor-led process. It is important as
you move forward in innovation that you reduce the risk to get
to the stage where the investor will make that investment decision.
We work closely with the market. We are business
led, like Keith, and we focus on delivering business benefit.
Another way of looking at us is that we sit between the inventor
and business, so it's not necessarily exclusively between academia
and business. We find that collaboration is absolutely critical.
We bring players together—industry and academia—into
collaborative projects. It's that collaborative approach and the
ability to exploit the results of those projects for all that
is crucial. We have some brilliant people. We have been able to
build a huge cadre of 1,600 years of experience in the process
industry, which is available to and valued by industry. We have
a very important set of assets—it is the assets that allow
the process of innovation to be de-risked.
I think, if I was to put that all in a nutshell,
you need to ensure that you have the assets that the industry
you are serving requires and the people who are skilled and knowledgeable
in commerce, business and marketing, as well as in academic research.
You also need a constant and strategic vision about where you
are going—it is a market-led process.
Q50 Chair: Is there any evidence
that that approach results in the financial sector taking a slightly
longer-term view with such SMEs than with companies without the
kind of support you are able to give them?
Professor Perry: That's a very
important question. CPI is a young organisation. It's seven years
old now, and you have got to look at it compared with the Fraunhofers
that are more than 50 years old. We are still establishing our
own track record, but one of the things that we are saying to
the private sector is that we can de-risk—we can carry out
much more effective due diligence on the companies that we both
spin out and work with, which will de-risk your potential investment.
It's too early to point to a number of compelling examples where
that's happened, but discussions are happening in real time, in
which we are talking to finance houses, members of the BVCA, and
so on, with exactly this proposition, and we are getting a lot
of traction and a lot of interest.
Q51 Chair: You might be interested
to hear that in Germany the senior civil servant, who was previously
a banker, gave a one-word answer to that question when I asked
him the other day. He said, "Yes." It will be interesting
to see, in a few years' time, whether you can say that—whether
the TICs produce the same kind of record.
Professor Perry: I am hoping it'll
be in two, three or four years and not much longer, because those
discussions are going on in real time, as we speak, and there
is a lot of traction.
Q52 Stephen Mosley: In Dr
Hauser's review, he identified a number of technology areas that
he thought would benefit from having a TIC set up in them. I am
sure that all of us in this room could come up with our own ideas,
and I would be interested to hear what sort of areas you think
would be useful, but when it comes to feeding that into the process,
how do you think that the Technology and Strategy Board should
decide what areas these TICs should concentrate in? What sort
of process should it use to ensure that it's transparent and open?
Professor Ridgway: It's fairly
important that we get to industries that can actually produce
results, so that we can see benefits within the time—the
relatively short time—that people in industry have to get
those results. High-value manufacturing has been mentioned a number
of times as being an obvious candidate—aerospace, the nuclear
industry. These are big markets to go for, and we can get results
and demonstrate those results fairly quickly.
Pam Alexander: I think it's crucial
that we have the world-class research base in that area, but also—as
has just been said—that we have the industry that is ready
and willing to take those opportunities and exploit them. We must
be aware that it is a growing global market—it's a real
opportunity that we can get fairly instant results from.
The independent review that PricewaterhouseCoopers
carried out of Regional Development Agencies' innovation work
suggested that we got an £8 return for every £1 that
we were putting into the innovation infrastructure. That is something
that we might use as a benchmark as we look at success for the
future—but it does mean that there needs to be real potential.
We also need to ensure that we are getting out into the business
world—not just to the primes, as Richard said, but down
the supply chain, to support the small businesses that can grow
and become that opportunity for the future. That means looking
at the whole ecosystem of innovation, not only the technology
innovation centres themselves, but the venture capital funds,
which will be co-ordinated by Capital for Enterprise Ltd, the
business support structures and whatever support we are going
to give high-growth businesses in the future. That has been the
basis for the RDAs' support for the sorts of organisations that
we have here today. It has been about putting the whole ecosystem
together, not simply one end of it.
Professor Brook: I think that
you need a business plan for investment. I would follow the model
that you are investing in a company, so you would say, "where
is the market and where is the need?" You would evidence
that, and look at routes to market, how you are going to get there,
what the strengths and weaknesses are, what resources can be brought
to bear, how much it will cost, and the return on investment.
I see a lot of merit in following the practices that we would
apply if this were a company in which we were investing. Clearly,
it is a broader enterprise than a company, but the process of
defining markets, the route to market, strengths, weaknesses and
competitive edge is entirely valid. I would want to see such a
plan underpin each of the TICs.
Professor Perry: I agree. The
critical importance here is the potential impact on the UK. Part
of that equation has to look at the competitive position for the
UK. If we are successful in establishing these TICs, we will recover
some ground against some of our competing nations—that is
crucial. It is very important that we understand where the UK
can benefit from these. That will be in one of three areas: an
area where there is existing economic activity, but innovation
is required and needs to be supported by industry to get to an
inward investment position or to support existing companies; a
technology area that promises great potential, which has started
to be exploited, but needs to be kicked that little bit further
to get it there; or the difficult area of technologies that are
still coming, but do not have any economic activity around them.
If those three different types of activity can develop an investment
plan, as Richard is advocating, we will begin to see where the
sense is and where these things should be, but we have to do that
in the complex competitive landscape in which UK plc is operating.
Q53 Stephen Mosley: In the
past, the regional development agencies and the devolved assemblies
have had their own science and innovation priorities. When the
Government are drawing up their proposals for the areas and the
geographic locations that the TICs will go in, should they be
looking at the previous RDAs' or devolved assemblies' priorities,
or should they look at new priorities or new areas?
Pam Alexander: Over the past three
years, RDAs have looked at our strengths and priorities very much
from a perspective of UK plc, as has just been said, because if
we are not able to grow those international markets, we will not
be succeeding. The work RDAs did with the Technology Strategy
Board 18 months ago, which started setting out the different strengths
around the UK, including the Devolved Administrations, has been
the basis for a lot of the investment that has gone on since then
in the different centres around the country. We are beginning
to see those unique propositions, but I absolutely agree with
what Richard said at the beginning—we need to create hubs
and spokes. We are not going to have low carbon concentrated only
in one part of the country. What will be really important is to
invest in the hubs and spokes across the country that make the
best of all of the resources that we have, whether it is business
or university, without spreading the jam thinly. In other words,
we should focus on the hubs that are the Technology Innovation
Centres, but have them very well networked into centres of excellence
across the country.
Q54 Stephen Mosley: The Chairman
and I, as north-west MPs, have got a big issue that a lot of this
investment always goes into the golden triangle between Cambridge,
London and Oxford. I can understand that, because that is where
the expertise is. However, we also have regional development aspects
as well. Which do you think is more important for the location
of the hubs: the regional development aspect or the centre of
excellence?
Pam Alexander: I think that there
are centres of excellence in the north-west where the RDA has
invested substantial sums of money. They are real centres of international
excellence. I am sorry I cut across you, Nigel, but maybe that
was what you were going to say.
Professor Perry: I was going to
say a number of things. First, I will hark back to the questions
on Fraunhofer and the attachment between a Fraunhofer and an individual
university. There is a compelling argument, which is that having
the TICs independent of the university knowledge base is quite
important, because the TICs can go to as many universities as
are world leading in the science that they are trying to access.
That frees up the centre from having to put in a geographic location
next to a university. I suggest that the next most sensible place
to put it is next to the concentration of the industry, because
it is the industry that, through its market pull, will provide
the greatest tension in the centre and set its agenda. Pam is
quite right that in the north-west you have the knowledge centre
for materials chemistry at Manchester and Liverpool, and in associated
universities. We work directly with that centre as a national
centre in the north-east of England.
My final point is that the UK is a great country,
but it is also relatively compact. We can move around it with
relative ease, and we have got a good transport system. Modern
communication processes do not mean that we need to sit next to
each other to work with each other. We can move all round the
country virtually and physically, if we need to, relatively easily.
It is conceivable for us to have national TICs in, say, north-east
England very easily. They do not have to be constrained by a geography
that means we cannot move around the UK.
Professor Brook: I think it's
very important to keep the fact that global growth of our market
share for the UK is the key thing here. This is quite a complicated
enterprise, so we ought to keep the message for the TIC itself
as simple as possible. The north-east and the north-west come
into play when we look at where the SMEs and other companies that
spill out of this enterprise will go. I have another hat—being
involved in investing in early-stage companies. The schemes that
are available to support those early-stage companies in the north-east
and the north-west are much more attractive, in many respects,
and have much greater funds and capability than down here. So,
for growth of jobs and new companies and enterprises, making those
regions as attractive as possible to set up in, as you start to
exploit the output from the TICs, is the most important thing
in terms of how we can benefit those regions. Where should the
hub be? I think it just needs to go where the best resources are.
Professor Ridgway: I think that
our experience has been that companies have actually come to the
expertise, and you should back the expertise.
Q55Chair: In your case, it happens to
be in a university.
Professor Ridgway: We're on the
edge of the university, yes.
Pam Alexander: Could I just come
back and say that there are already examples of where we are making
the hub and spoke work. Renewables energy in the north-east is
very closely hooking into the opportunities that we have in the
south-west with Wave Hub. Daresbury is very well linked with Harwell.
There are already collaborations going on across the country,
which I hope means that this is not a choice between investing
in the golden triangle and investing in the rest of the country.
It is absolutely about getting economic growth that will spread
across the industries throughout the UK.
Q56 Stephen Metcalfe: Let
us explore the role of the TICs a little further. You talked about
a pull model from industry. Do you think that that is the only
model that can work? Should some models be the push model, and
would that be in different sectors?
Professor Brook: I think it is
about right, frankly. I think you need both, and you need them
to work together. In the Faraday Partnerships, we successfully
brought industries together and got them to articulate what they
needed and were looking for, which was the pull. We got the academics
together—actually, in the same meeting—and got them
to articulate what they were doing and where their research was
going. We then facilitated the matches between the pull and the
push, to put together project consortia to take things forward.
It needs to be both: without the push, you may not get as much
innovation as you would like; without the pull, you run the risk
of generating something for which there is no customer need. So,
it's a balanced model, but it needs facilitation somewhere in
the middle to make those two things join up.
Professor Perry: I agree that
it's a combination of market pull and technology push. We have
to remember that, as I said, CPI sits between the inventor and
the business. I use that form of words deliberately, because universities
contribute some of the inventions, but a lot of the inventions
that are exploited by industry actually come from industry. There
has been some excellent work at the Judge Business School at Cambridge,
which has demonstrated what level of invention comes from our
universities. It is quite a small number, but the key thing is
that that's actually transformational invention—it changes
the rules of the game. But the large amount of innovation and
invention that comes from business is ongoing, and it is a daily
activity. So we see a supply chain. We see the universities, a
TIC and industry, but we also see the TIC interacting directly
with industry and pulling in science where it needs to from the
universities in a reactive mode.
Professor Ridgway: I think universities
have been very good at the push model in the past; we've done
that very well. I think we need to go over the top on pull. You
will find, with a lot of the things that are pulled through, that
SMEs then come in at the bottom end of the TRLs and provide that
innovation down there. It is not necessarily universities. It
is SMEs and people who sometimes have the mad ideas that you can
bring through, because the leadership is there.
We really like to work with big companies, because
I think they create the market for the SMEs. SMEs quite often
want to see a market and a business. If they can see that, they
don't necessarily want a grant. If they see a market and a business,
they will go for it.
Pam Alexander: The funding that
we are talking about—a third, a third and a third—absolutely
requires the private sector to see the commercialisation opportunities
here. Otherwise they won't come in with the contracts that are
needed to make this work. The commercialisation end is absolutely
crucial.
Q57 Stephen Metcalfe: Do you
think that the model will change from sector to sector, that there
will be some where there is more push and some where there is
more pull? Also, you've talked about small and medium-sized enterprises.
They are going to be quite important, I imagine, to make this
successful and in the actual creation of growth. Is there a particular
model that suits them better? You talked about pull—they
want to see the market. Is it as simple as that?
Professor Ridgway: I think that
sometimes working with big companies, for example Rolls-Royce,
which is developing Trent 1000 or Trent 900, is creating a huge
market. SMEs can start to fill that demand. You want to machine
down the supply chain and providing materials at all levels. I
think it's very hard to generate that level of economic development
by SMEs coming and growing. For an SME to grow by six or 12 people
is quite a task, but for Rolls-Royce to put 2,000, 3,000 or 4,000
people on its new engine programme is relatively easy. That creates
work everywhere.
Professor Brook: I have two comments.
We got customers into Faraday Partnerships by getting the big
guys there. If they [the SMEs] knew they were going to meet the
big guys at the meetings, they would come along, because they're
potential customers.
It isn't one size fits all, though. It depends
how well developed the supply chain is. If you're trying to insert
innovation into an existing supply chain, you'll have one model.
If the market isn't fully matured and if the supply chains haven't
evolved, it needs a different model. I think it [in the latter
instance] needs some technology push, but a lot of entrepreneurialism,
and the key factor there is finding the guys whom investors can
back to build businesses into spaces where supply chains don't
yet exist, and that's where a lot of the great opportunities will
be.
Q58 Roger Williams: The success
of technology innovation centres will depend on how they work
with industry and universities, particularly in terms of how confident
each partner is about intellectual property rights. Have you got
a vision of how TICs should work alongside companies and technology
transfer organisations in universities? How will that look?
Professor Ridgway: We have a partnership
model, which people sometimes criticise, but gives us a very clear
IPR model that we can use. Basically, if IPR comes from partner
funding, the university owns and protects it. The partner is allowed
free royalty to exploit it. If a company wants to take its own
idea forward, it pays extra, takes it and owns it. Quite a lot
of companies much prefer that model, because as a university we
tend to patent only the one thing that is important to us, whereas
large companies put blocking patents out. We can't afford to do
blocking patents. That relationship is quite important. So I think
that we have to develop a relationship with the companies that's
of value to us as a partnership; universities can exploit it.
This is very valuable to one sector. The UK companies and industry
will take it and protect it. The other thing is that protection
is very expensive. We have found it quite difficult as a university
to cope with that. We have sold things early to the companies
to take on and protect.
Q59Roger Williams: It has been suggested
sometimes that universities would like to rush into publication
before companies have the opportunity to maximise on the investment
that they have put into the partnership. How can that be managed
or how is it managed at the moment?
Professor Ridgway: It can be managed
with collaborative agreements. We have collaborative agreements
in place. Probably most of our organisations have that method
of working where we allow the companies a certain length of time
before anything is published. It may be two or three months before
work can be published. I think it is relatively easy to manage
on that basis.
Professor Brook: There are established
procedures. In fact two of AIRTO's members are universities. I
am on the intellectual property exploitation board of one of them.
There are invention disclosure processes and it is a process of
educating the academics about the relative advantages of publication,
delay or protecting it [their IPR] and when to patent and when
not to patent. Increasingly, awareness of these processes is being
put in place. There is exchange of best practice between our members
and universities and between the universities themselves, which
is helping this process to become more established.
But if you look at the Research Assessment Exercise—the
RAF as it now is—people are striving to produce publications
because that is what goes into the assessment of the university's
performance. If you are trying to tell people not to publish,
that does not necessarily go down too well, but then you can usually
find something that allows a publication but does not disclose
the key thing that needs patenting. So with a bit of work you
can probably get the best of both worlds, which is a respectable
publication but also still the potential to patent. But it takes
time and effort, and that costs. That is one of the things that
is time and cost consuming.
Chair: And a bit more challenging in
the hub and spoke model that has been described?
Professor Brook: I am not sure
that is necessarily the case.
Chair: The more partners there are in
a network—
Professor Brook: The more partners
there are in a network, the more complicated things can become.
Then it is a matter of who is managing that network and who manages
the TICs and what they do in disseminating best practice out to
the spokes and how they want them to work. Yes, to get this co-ordinated
will take some time and effort. It is one of the things that the
core funding is needed for.
Pam Alexander: But also since
part of this is about the differences of culture between universities
and small businesses in particular, the ability to reach out and
help across that bridge is quite an important part of that mix.
Professor Perry: This is a key
area. The objective here is to get knowledge that is exploited
in the UK for the benefit of the UK. You've heard Keith talk about
the importance of collaboration and the flexible model. That is
certainly something that we would approach and recognise. It is
a very important art form that the TIC is able to work with IP
without leaking it and is able to work both pre-competitively
and post-competitively. Pre-competitively is somewhat easier.
Post-competitively, you are dealing with quite significant levels
of investment and quite significant levels of knowledge, which
need to be protected. So what we do is work a very flexible model
according to the collaborations and the organisations that we
are working with. Sometimes it is very tight, where everybody
is very clear what they can and can't do. Sometimes it is a little
more open where there has been more flexibility.
The other thing is to recognise, particularly
in the process industry, that intellectual property is protected
by know-how rather than patents. I recognise the behaviour that
Keith describes about blocking patents and such like because where
we do patent, that issue exists as well. You have to be clear
that there are different IP models in different sectors. It is
important to be flexible. If you go in with a rigid model, you
will come up against a large company's IP department which has
very significant resources and you'll end up doing it its way.
You also need to be flexible with the universities and recognise
that they are rewarded through publishing knowledge. That again
is a discussion and an agreement about when you can release that
knowledge, if indeed you can ever release the core parts.
Q60 Roger
Williams: It has been suggested that each technology innovation
centre should be directly aligned to a particular university,
and that that should be reinforced by a professor in that university
being a director of the centre. I can see someone shaking their
head already.
Professor Perry:
We've worked with Fraunhofer. You have to recognise that there
are 59 Fraunhofer institutes, so they can be attached to 59 universities.
We're looking at a budget that doesn't extend to that number of
institutes—we're talking about five to eight. I have discussed
at length with Fraunhofer that there are very significant merits
in a model that is UK-oriented and developed, in which the TIC
is able to go to any number of universities from which it can
get world-class research. In our research-funding process, we
don't concentrate resources through a single university: we encourage
competition between universities. We certainly take benefit from
the fact that we can engage with any number of universities where
there is that world-class science. That is what our industrial
clients expect us to do.
Professor Brook: Actually, it's
what the industrial clients want. They want the TIC to take apart
their problem, source the science or the technology from wherever
it best exists, and then put all that back together as a solution
to the problem. I don't see any reason at all why there shouldn't
be students, professors or academics on secondment, or whatever,
into a TIC from a number of different universities. With the Faraday,
one of the things that worked was that we developed a number of
very good relationships with academics from at least a dozen universities,
who felt part of the partnership.
Professor Ridgway: I think that
the big loss of the RDAs is the investment that we've been able
to attract over the years to do world-class industrially based
research. I think that if the TICs need to do that, and on a split
model, where a TIC is basically subcontracting to a number of
universities, that doesn't allow us to build that critical mass
and that centre of excellence with the equipment and everything
in it. So, I prefer the model that we are running now—I
find it much better.
Q61 Gavin Barwell: I want to pick
up where Roger left off and talk a bit about governance issues
and also about branding. What measures do you think need to be
put in place to ensure that the TICs have strong central governance
and yet have that crucial institutional autonomy?
Professor Brook:
I'm used to working with companies that are limited by guarantee
and which therefore don't have a shareholder interest but do have
a constituency of industrial and, with the Faraday model, academic
stakeholders. You therefore need representation from the constituency
to which you're accountable, but within that you need an executive
board with perhaps one or two volunteers from the council—if
you like—of stakeholders to do the day-to-day business.
You formulate a group of stakeholders to whom the institution
is accountable, and then it justifies its existence, and if they
don't like what they're seeing or it's going in the wrong direction,
the executive management gets fired.
But what's crucial is a clear vision of what
the institute is trying to achieve, and that that is held consistent
for a good period of time and doesn't keep wandering about because
different people with different visions get involved. To my mind,
it's very much like operating as a company, but you're accountable
to a community of people rather than to shareholders.
Pam Alexander: If we're looking
at this as a network that has a brand, it's going to need some
strong driving from the centre to set up the terms of reference
in the first place for the technology innovation centres. They
need to be set by Government at the centre, and then by the Technology
Strategy Board in more detail. They need not to be doing the governance
for the TICs: they need to be very clearly setting the parameters
within which they operate and what the success criteria are if
they are to be seen as technology innovation centres for the future.
We believe that the models we've been developing and supporting
as RDAs have been very strongly business led. We see business
as central to the governance, which needs to involve particularly
small business, not just a few primes, alongside the other elements
that are going to be in that mix to make it a successful centre.
Professor Brook: In my constituency—the
Institute for Sustainability is an example—you've got the
big guys in there. You need the big guys to be members because
they will subscribe and help with support, but you also need representatives
of the small companies to be in there as part of the mix in the
community that you're accountable to.
Professor Ridgway: We need to
be industry led, where we have an industrial board. This is my
personal view. We need a federal structure, where we're given
autonomy. Above that industrial board, where we have the basic
TICs, we need probably a management board, possibly the TSB and
some other people who can then take that overarching view of where
things are.
Professor Perry: It's quite critical
to recognise that the TIC is delivering value to the private sector,
and therefore the private sector has a very significant role in
the governance process, so that's the business-led, large corporate
and SMEs, because there are different challenges in those. It's
also important to recognise that it's delivering value to the
public sector in terms of economic benefit—that's the whole
purpose of it in that sense—and therefore it's appropriate
that the public sector is also represented in the governance process.
The proposition of the TSB being the overall co-ordinating body
is entirely sensible, therefore, because that does bring industry
and the public sector together. There's much merit in following
the model that we use at CPI of having that also reproduced at
the individual TIC level. It mirrors comfortably, then, the way
in which not just the Fraunhofers are operated but also VTT in
Finland, TNO in Holland, etc, and in fact most of the devices
that we're looking at across our competing nations.
Professor Brook: I think the brand
will need managing, by the way, because if we have variable performance
among the TICs, industry will start to regard some of them as
not quite what it needs. The brand will not have the power and
the strength that it needs, so somewhere in the governance at
the top level, somebody needs to look after the brand and make
sure that the image and the performance reinforces the brand.
Q62 Gavin Barwell: Perhaps
I could pick up on a couple of those little points, and then I
have one general question for all of you at the end. Professor
Brook, you were talking about companies limited by guarantee.
Is that just for clarity? That's the governance model that the
independent organisations that your association looks after tend
to use?
Professor Brook: Not exclusively.
In fact, I've got everything from universities through to shareholder-owned
companies. QinetiQ is a member. We've got companies limited by
guarantee. We've got a charity—the Institute for Sustainability.
So, actually, the legal formulation is not key. It's what those
organisations do that matters.
Q63 Chair: An employee-owned
company.
Professor Brook: An employee-owned
company, yes BMT.
Q64 Chair: BAE.
Professor Brook: One of the things
that came out of AIRTO was a company that I have an involvement
in. It invests in early-stage companies, raises funds and is shareholder-owned.
Q65 Gavin Barwell: A wide
range.
Professor Brook: Yes, a wide range
of different governance models. But when you look at trying to
bring something new like this into existence, and you don't want
it to fall too much into any particular—dare I say it?—vested
interest, the model you generally come back to is the company
limited by guarantee, at least to start with. You're then not
beholden to a particular set of shareholders. You re-invest whatever
surpluses you make rather than distribute them to the shareholders.
Your assets can't be distributed to shareholders if the organisation
does get into trouble. It positions organisations in that centre
ground, albeit you don't have the ability to go out and maybe
raise funds in the way that a shareholder-based company would.
Q66 Gavin Barwell: Professor
Ridgeway, AMRC has stated in its evidence that it's a centre directed
by a board of industrial partners.
Professor Ridgway: That's right.
Q67 Gavin Barwell: Is the
board purely made up of industrial partners or are there academics
also represented?
Professor Ridgway: There are 20
industrial members of the board. Three are from the university.
It's actually owned by the university—as a university department.
It's an institute in its own right. So it's not a company limited
by guarantee. Although the finance is governed through the university,
it does give us the advantages of being able to get—if you're
going for European funding—better returns on grant rates
and overhead rates. There is a lot of advantage in being a university
from that point of view.
Q68 Gavin Barwell: Do any
of you have views on what this network should be called? There
seems to be a general recognition that branding is important.
Do any of you want to take the opportunity to express a view on
that?
Professor Brook: I haven't got
a clue.
Professor Perry: I think we should
remain silent.
Pam Alexander: I agree.
Q69 Chair: We said this to
our witnesses and the public last week: we are looking for good
ideas from you, so think about it over Christmas.
Professor Perry, you talked about the numbers
that would emerge given the available budgets. You said about
eight, but somewhere between five and 10 is possible if you look
at the available monies. Is that going to be enough?
Professor Perry: The reality is
that it's a great start, but I'm not sure that it is enough. We've
done a lot of benchmarking across Europe with CPI, and what we
see is that the average institute across Europe has about €25
million, or £25 million, and about 200 people. You've been
to see the Fraunhofers. There are 59 there, and that is the average
size of those 59. If you look at the £200 million, we mustn't
forget that in the one third, one third, one third model, that
should, with time, grow to have the economic impact of around
£600 million effectively. On that scale, I think it is a
great start, but it has some way to go yet.
Q70 Chair: Do you think we'll
get that financial model off the ground, with a third from each
partner?
Professor Perry: I think it is
a target that we have to go for very hard. One of the assessment
processes around that core funding has got to be to on the framework
of the one third of the joint public-private projects, and also
the commercial projects. But it is not something that you can
magic overnight. We've been going for seven years. We started
100% publicly funded, and we're now at 80:20. The arithmetic consequence
of the one third, one third, one third model is 50% public and
50% private. We are targeting CPI towards a 50:50 private-public
partnership. After seven years, we are operating at about 80%
public funding and 20% private funding. We have to pursue that
private funding. That's what gives you the benchmark that says,
"You're doing the right things." We have to pursue the
framework and TSB programmes because that again is evidence that
you're doing the right thing. I think you have to do it. There's
no question. It is part of the model.
Professor Brook: Most of AIRTO's
existing RTOs are very much more towards the majority of private
funding, with a minority of public funding. What they're missing
is the core funding element, which allows you to regenerate your
expertise, because you can't make the margins out of collaborative
projects and work in this kind of space which would allow you
to reinvest adequately.
I think that the TICs, in due time, will probably
go towards a majority of private funding over public funding,
but it will take time, and I think the core funding needs to be
there until the market failure has gone away. If you stipulate
that the core funding will be there for five, or even 10, years,
then you take it away, and the market failure is still present,
the TIC will move towards a more commercial model, and you'll
lose the behaviour in terms of supporting small companies and
engaging with more research as they seek a more conventional commercial
model. The behaviour that I think we're looking for, in order
to try to address the market failures that exist, relies on having
that element of core funding on a continuing basis, at least until
the problem has gone away.
Q71 Chair: Can I just stop
you there, before I call in the other witnesses? You almost implied
there that the public sector only needs to have a moderately long
horizon, but the Fraunhofers, for a long period, across different
Governments, have maintained a very significant chunk of public
money in the structure.
Professor Brook: That's true,
and I think we should be looking for the same continuance of public
funding in these instances. But the Fraunhofers, of course, have
evolved, changed and migrated—if you look at them now and
15 or 20 years ago, they are doing different things. They are
changing and adapting to the needs in the market, in terms of
the function that they perform.
Professor Perry: There are two
issues here to be considered. The first one is that the technology
agenda of a TIC will evolve. To use Richard's terminology, as
that technology market failure is solved, then the centre will
evolve to look at a different technology. But the issue of longevity
of public participation in these things is very significant and
very important, particularly if you are using the Fraunhofer as
a model. You have to think, perhaps, of private sector investment.
Capital is mobile—it can go to any country in the world.
The process industry is a particularly internationalised industry.
I would suggest that it's very important that we offer similar
capabilities to other countries, in which process industry companies
can invest. I think that the market failure is probably a fairly
long-term one in that sense—in the technology sense, it
evolves and moves on.
Pam Alexander: Yes, the sustainability
point seems to me a really crucial one, and it's one of the reasons
why we believe it's important to be building on the investments
that have been made over the past few years, because we have been
putting about £170 million a year into the infrastructure
of the centres that Regional Development Agencies have been supporting.
Some of those have made great strides towards finding different
sources of funding but, clearly, there is not going to be that
much going in future. As has already been said, it is really important
to keep the funding continuous and to make sure it gives confidence
for the future.
Q72 Chair: Professor Ridgway,
it would be helpful to know, in your case, what the percentage
of private money is.
Professor Ridgway: It's at least
a third, a third, a third—but it's probably higher for private
sector funding. The reason is that we have a partnership model,
so the partners pay £200,000 a year, in cash or the equivalent
in kind—only in kind if it comes off the bottom line, if
it's equipment we need. So, between a third and about 40%[1]
is private sector funding.
Q73 Chair: In your written
evidence, the AMRC said that three-year instalments of funds are
sufficient, while the RDAs and Rolls-Royce, among others, argued
for longer-term commitments. Do you think that the Government
should really think longer term?
Professor Ridgway: I think we
need long-term funding. Our problem in being with the RDAs is
this big capital investment that allows us to be world-leading
in, say, machining, where we need machine tools at £1.5 million
a time. The RDAs were very helpful and allowed us to get those,
and to work with the leading companies on that type of commitment.
The projects are probably three to four years on those, which
is fine, and that is the level of funding that we need to be continually
updating and taking our equipment forward in the future. It's
a continual need that we have.
Chair: It's a rolling need.
Professor Ridgway: That's exactly
right.
Q74 Gavin Barwell: To follow
on from the Chairman's questions in relation to core funding,
I would like to look at where the additional funding for TICs
will come from. How can strong links be forged between TICs and
financial organisations? What are the best methods for doing that?
Professor Perry: The model we're
pursuing recognises that. CPI is a company limited by guarantee—referring
to an earlier question—and, as such, we can't receive private
sector or financial institution investment. You just can't do
it, so you need to create devices which, basically, are companies
limited by shares, and that is where our spin-outs come in. We
are trying to generate spin-outs for a number of reasons. First,
so that we can attract private investment. Secondly, those spin-outs
are using technology that we have developed and they will, therefore,
reward that technology. Thirdly, at some point those companies
will be sold and there will be equity proceeds for CPI in total.
That is the model that we have worked out to
bring public money into what we call the top company, which is
CPI, and to bring private money into our enterprises operation.
It is an organism—it is a symbiosis, with the private money
getting the benefit of the public money, and the public money
getting the benefit of the private money.
Q75 Chair: Is that always
loans, or is it sometimes equity stakes?
Professor Perry: At this point
in time it is almost exclusively equity stakes and not very much
of them, which is why, earlier, I said that this is still real-time
conversations that we are trying to develop.
CPI as a company cannot borrow money; we are
precluded from borrowing money at all. We cannot collateralise
our public assets or anything, whereas our spin-outs can. But
they need a proposition that a bank will raise debt finance for
them against that—that could be a business plan, intellectual
property rights, or whatever.
Professor Brook: I think SMEs
find it difficult to get bank loans—that is another conversation.
But there are now early-stage funds that will invest modest amounts
into an SME for a minority stake, either as equity or as a convertible
loan. With my other hat on, we do that—and in the north-east.
Professor Perry: I know.
Pam Alexander: We have regional
funds, which are helping to bridge that gap, particularly on the
early-stage commercialisation funding. Those should be brought
together under the new umbrella of Capital for Enterprise Ltd,
but should still be available at regional level.
Q76 Gavin Barwell: In terms
of accessing funding at European level, what role would you see
them having in facilitating business engagement in that?
Professor Perry: This is a crucial
role for the TIC. We have a device within us, which was originally
funded by Europe, called the Enterprise Europe Network, which
is to download euros. We have brought down up to €80 million
for industry and for ourselves in that process.
As we move forwards we will be developing a
dedicated team inside CPI, whose sole target will be to identify
and target those framework programmes. That is critical, because
the scale of the framework programmes is ambitious, as you are
aware.
Also, the scientific contribution that the UK
makes to Europe, if not the world, is very significant. We are
regarded as a huge scientific contributor—we now need to
leverage that out as a benefit through the framework programmes.
Professor Brook: It's a major
role for the TICs, which can do a lot of good in helping in collaborations
going to Europe.
Professor Ridgway: It adds to
the problems of IPR management. Going into these large European
programmes, where you have developed expertise yourself, you are
now in a sharing situation with European companies—maybe
they will be competitors of the British companies that you are
already working with. It takes a little bit more thinking out
to get right.
Professor Perry: If you look at
Fraunhofer—I hope I don't burn my boats in my relationships
with Fraunhofer with this comment—VTT, and other similar
interposing organisations across Europe, they are extraordinarily
successful at downloading European money. They have devices and
mechanisms, and they behave as though that is a critical objective.
Q77 Gavin Barwell: Is it your
view that the UK has not been extraordinarily successful thus
far?
Professor Perry: You could say
that, yes.
Professor Brook: We do well on
the academic front; we do proportionately less well on the industrial
front. The TICs can help, I think.
The process of applying for framework projects
is quite painful in many respects and puts industry off. SMEs
find it particularly hard to bear the risk that is involved. The
TICs can be the champions of helping them into Europe.
Pam Alexander: The other element,
of course, is the collaborative research and development grant
funding, which enables coalitions to come together and share the
costs and the pain of those applications. All RDAs have been involved
in encouraging that, and, as we go forward, we will see whether
the growth hubs or the Technology Strategy Board are able to give
that same support.
Q78 Stephen Metcalfe: We've
covered a fair amount of how we should view the TICs as successful.
Perhaps you could summarise what you think are the indicators
that they are being successful.
Pam Alexander:
From our point of view, I think it is going to be about impacts
on economic development, which is always the most difficult to
measure. The GVA measure, which I mentioned at the beginning,
of our return on investment of £8 to £1 is about jobs
created. That probably makes the link between the different parts
of the country and the need to create jobs for UK plc across the
country. Those outcomes are going to be the bottom line, although
along the way we will undoubtedly measure outputs in terms of
patents and spin-out companies and, I'm sure, some of the inputs
as well.
Professor Brook: The impact is
the key thing, so I would say: progress towards the "a third,
a third and a third" funding model; how much the TICs are
enabling industry to recover from European programmes; and effective
exploitation, which would come down—I hate to say this—to
measures of patents or spin-outs, and the impact of those. I would
probably also look at skills and what happens to the people, because
the TICs are potentially routes for people to do a great apprenticeship
in this intermediate commercial exploitation business, and then
to move out either to set up their own businesses or to move into
the industrial supply chain. My problem was that it was so attractive
that I stayed there for my whole career. Secondments—the
ability to have mobility between the industrial partners, the
TIC and the academic sector—and the flow of people are some
of the things that I might look at to see whether they are being
done effectively.
Professor Perry: CPI has been
measured and assessed quite relentlessly since it was created,
using the national tasking framework, which basically measures
the economic impact in terms of jobs created or protected, leveraged
investment and such like. Those give very hard and very auditable
numbers—for example, CPI has leveraged in £500 million
of investment and created or protected about 2,300 jobs, which
are significant impact statements. You have to combine that with
progress towards the strategy as well, very much as Richard was
advocating. We are not going to wake up on day one of a TIC to
find that it is a third, a third and a third, and we have to measure
that progress.
There are some very important, if I may say,
non-quantitive or qualitative measures, which relate to your stakeholders.
That is the group of people involved in the process, both public
and private, academic and industrial. They have to be convinced
that the technologies that are being pursued are correct, that
the centre is approaching them in the correct way and that it
is actually adding benefit. There has to be a combination of those
very hard national tasking framework numbers with progress towards
the strategic goal and the stakeholder assessment of progress.
Professor Ridgway: The KPIs are
very important and very difficult to get. In some cases, jobs
created is not a good measure. High value added by high-value
manufacturing is one thing. We need to be more competitive, so
sometimes we might lose jobs for a while in some industries to
become competitive. The fact that, as a nation, we can let companies
go out to win large international orders and bring that wealth
creation in is a big factor that we have to bear in mind.
We keep partners within our organisations because
they have created wealth, so we have obviously created wealth
for everybody involved with us. Our suppliers throughout the supply
chain, if they are willing to come and pay, will know the value
and they will not pay for charitable reasons. We are not the
only country thinking of this. We have been approached by 22 countries
to go and give lectures about this type of model. We know of nine
AMRCs that have been set up around the world already. Once people
start to copy us instead of Fraunhofer, that will be a good indication
that we are doing quite well.
Q79 Stephen Metcalfe: Professor
Perry, I think there has been a statement that CPI's view is that
the centres should be discouraged from becoming too private sector
dominated. Do you want to expand on that a little for us?
Professor Perry: This is the point
that Richard was making, which is that if we move a centre to
be sustained wholly by its activities in the private sector, all
that we have succeeded in doing is setting up an SME that will
then behave exactly like an SME. The second point is that the
private sector interests are those of multinational investors
as well as SMEs, and we have to remember that part of what is
going on here is to enrich UK plc. It is very important that
there is creative tension. The comment also applies the other
way. It is very important that this thing does not become public
sector dominated. It has to operate in this interface between
public and private sectors.
Q80 Stephen Metcalfe: Thank
you for that. My final question is whether you consider that the
TICs have a life expectancy. Do you see them going on for ever,
or do you think that they will change and adapt, that some will
disappear and that new ones will be created to adapt to the needs
of the market? Do you think the Government should be taking into
consideration any decommissioning costs for TICs as they reach
the end of their life expectancy?
Professor Brook: I don't think
that there are many decommissioning costs. If the company is limited
by guarantee, the assets pass to another organisation with similar
objects. Therefore, I do not think that you need to think about
decommissioning costs. I would expect some TICs to stay in existence
and migrate. I think that they will need to migrate—if you
stay static, you are not doing the job. Some may well be wound
up, and that will be down to the constituency that they are serving.
If the industrial parties say "job done" and that they
have lost interest, they may well decide to wind one, two or three
of them up. In the long term, if TICs stay in existence they will
need to adapt, but it is down to the industrial constituency as
to whether it wants to carry on supporting the TIC or whether
it feels that it has done its job and therefore wants to wind
up the TIC.
Professor Perry: The concept has
enormous longevity, but each individual centre needs to be cognisant
of the fact that it has to perform and that the consequences of
non-performance are merger or desistance—whatever the appropriate
word is. You will see things change and adapt, but it is very
important that the concept is maintained over a considerable time,
because it will take considerable time for the true economic benefit
to emerge.
Professor Ridgway: In the sectors,
you can see the TICs continuing as far as we can see. Within those
TICs, you can see the themes that they work on developing, dying
off and being replaced by new technologies coming through and
their gradual replacement. The TICs will gradually change over
time, but they will still serve the same sector.
Pam Alexander: It won't just be
because of new technologies, it will also be because of changes
in global markets and demands and the opportunities for exploiting
those technologies. It will about the changing outputs as well
as the changing nature of the landscape.
Chair: Thank you very much for your attendance
this afternoon, it has been extremely helpful. If you have any
other thoughts, feel free to write to us. We are still in thinking
mode on this, although we want to be able to publish our report
before the Government say something too definitive. We have gathered
some useful pieces of evidence, including today's, which will
help inform the Government's decision-making process. Thank you
very much for attending. I wish you a safe journey home on a difficult
evening. The compliments of the season to you all.
1 Note by witness: The
figure is approximately 50% Back
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