Technology Innovation Centres
Written evidence submitted by The Work Foundation (TIC 56)
Technology Innovation Centres:
Applying
the Fraunhofer model
to create
an effective Innovation Ecosystem in the UK
I
ntroduction
1.1 This paper provides evidence to the House of Commons Science and Technology Committee on the implementation of an elite network of Technology Innovation Centres (TICs).
1.2 Since 2005, The Work Foundation has been researching how progress towards the knowledge economy is reshaping the economic life of all advanced economies, and the UK in particular. This change is creating a special need for a network of intermediary institutions which can better link research institutes with each other, and with businesses. Technology Innovation Centres must be a central part of this network.
1.3 In the knowledge economy, growth and job creation depend on our ability to generate and exploit intangible assets such as brands, human capital, and design. Here, innovation is the primary driver of value. This depends on our innovation eco-system – the set of organisations, institutions and linkages through which the economy creates new value in the form of products and services.
1.4 All innovations draw on the basic building blocks of knowledge creation, entrepreneurship, selection (of potential innovations, typically through markets) and the mobilisation of resources. The system relies on a network of intermediary institutions which can link and support the transfer of knowledge between these blocks. Our analysis highlights a major UK deficiency: a weak and fragmented system of research institutions that lacks the scale, coordination and commercial focus required to fully exploit the value of the UK’s knowledge and creativity.
1.5 There is, therefore, clear scope to draw on the experience of the German Fraunhofer Network to build a new class of institutions which can respond to this need. Our evidence on how this must be realised is presented in two main sections below:
·
Understanding the Fraunhofer model and how it should be applied in the UK – this section addresses questions one to three outlined in the call for evidence;
·
The need to position TICs within an effective UK Innovation Eco-system – this section addresses questions four and five of the Committee’s inquiry.
Beyond Fraunhofer - The model and its application in the UK
What is the Fraunhofer Gesellschaft?
2.1 Fraunhofer Gesellschaft is an integrated network of intermediate research institutions in Germany that support industry and technology transfer as part of a national innovation eco-system. This network is a major player within the German innovation eco-system, the primary independent applied research body in the country, and the largest organisation for applied research in Europe.
2.2 Deploying a model which has developed over more than 60 years, Fraunhofer Gesellschaft comprises more than 60 semi-autonomous institutes linked by a single over-arching governance structure. Seven content ‘groups’ – for example ‘microelectronics’, and ‘ICT’ – link the research activity across institutions.
2.3 It undertakes applied research of direct utility to private and public enterprise and of wide benefit to society. Customers span industry, service sectors and public administration. These Fraunhofer Institutes develop and exploit new technologies by creating an infrastructure bridging the needs of applied research with those of technology commercialisation.
2.4 The Fraunhofer Gesellschaft network has over 17,000 employees, including more than 11,000 research staff, and generated an income of more than €1.6bn in 2009.
Why have Fraunhofers been effective in Germany, and how should this be translated for TICs in the UK?
3.1 From our investigations, we believe there are a number of clear principles behind the success of the Fraunhofer model in the German context: their focus on national economic strengths; their operation as a single co-ordinated network; their high-reputation and strong brand; their commercial focus; and their independent operation.
3.2 While the Fraunhofer system should not be viewed as a panacea for linking universities and industry, the principles of success in the German context offer important insight for translating the system into the UK context:
1.
Focus on national economic strengths and areas with strong growth possibilities
3.3 All of the UK’s areas of competitive advantage lie within the "knowledge economy". Universities and other research institutions are a key source of competitive advantage within these areas, making it crucial for them to establish effective links with businesses.
3.4 Jobs in knowledge-intensive activities were less affected by the recession than the rest of the economy. The most recent economic and employment figures tell us that advanced manufacturing is starting to grow strongly, and that almost all the net growth in jobs is coming from knowledge-intensive services. Initiatives framed to drive innovation and growth in these areas offer the greatest scope for economic returns and value for money.
3.5 It is important to stress that while each TIC should have a clear subject focus within its mandate, they should not be exclusive or restrictive in terms of the academic disciplines of individual researchers, since it is at the boundaries of where these disciplines meet that innovation occurs.
3.6 While the German Fraunhofer Institutes tend to focus on advanced engineering and physical sciences, the UK’s TICs should focus on sectors that reflect the UK’s strengths. The four broad areas of activity that we expect would benefit most from TICs are:
·
Advanced manufacturing (including the growing "manu-services" sector
[2]
);
·
The low-carbon economy
[3]
;
·
The cultural and creative sectors; and
·
High-tech services.
3.7 It is important that the geographic placement of TICs reflects the existing distribution of these economic strengths and growth possibilities, maximising potential returns. There is a trade off between distributing the new TICs around the UK (helping to balance the geography of economic growth) and locating them in the most competitive locations possible (which will disproportionately favour London and the South East). While TICs should aim to support growth around the UK as far as possible, this should not be at the expense of building fully on the UK’s existing strengths and clusters.
3.8 We believe it is particularly important that UK TICs do not take a narrow ‘STEM’-only perspective. Innovative technology development is equally important to, for example, the future prospects of the UK’s creative and cultural industries. It is worth remembering that the Fraunhofers’ most financially-successful single innovation is the ‘mp3’ digital sound compression algorithm, a technology innovation that revolutionised creative content distribution.
2.
An effective network of powerful and influential intermediaries
4.1 The UK’s scientific research output is high by international standards, as measured by the numbers of publications and citations generated per capita, the number of inventions and sources of licensing income, and the number of staff working on licensing activities. The problem is not the quality or the amount of research coming out of UK institutions – it is in the lower number of patents registered; and the lower total amount of income derived from licensing activity.
In short, the UK is poor at exploiting the commercial value of its research.
4.2 This weakness can in part be explained by problems of coordination between intermediary institutions within the UK’s innovation eco-system. While Fraunhofer Institutes are a major regional and national player in the German innovation eco-system with a strong, unitary national ‘brand’ (see point 3 below), the UK system is currently more dispersed – or more fragmented.
4.3 The UK must look to emulate the Fraunhofer Institutes’ example by consolidating the fragmented set of intermediary institutions by applying rigorous criteria for assessing institutions’ value to the overall system. Our suggested criteria (set out below) have two key advantages. First, they would ensure government would only invest when alternative private financing was lacking; and second, they offer a rigorous process for selecting and deselecting institutions:
a)
A confirmed market potential (by industry consensus) of products from the research of over $2bn a year;
b)
Demonstrable existing UK strength or pre-eminence in the research field;
c)
Clear ability for the UK to retain and defend parts, if not all, of the value chain for future products;
d)
Lead time to commercial products from the research of over 10 years (e.g. beyond usual venture capital funding timeframes); and
e)
Clear commitments of industry support for each Institute and its focus – concrete pledges of financial support.
4.4 Gaining critical mass for real breakthroughs for each Technology and Innovation Centre would require concentrations of researchers – a minimum of 50 researchers per centre. The Fraunhofer network of over 60 institutes was built over 60 years. The UK should aim for a concentrated group of not fewer than 6 centres, and maximum of 10, and look to build from there. In a period of constrained public spending it is vital that investment is focused on developing a small but strong network of intermediate institutions.
3.
High reputation and strong brand
5.1 The credibility of Fraunhofer Institutes is reflected in their ‘employer of choice’ positioning within the German labour market: Fraunhofers are the 2nd most popular employer for German Natural Science grads, 4th for ICT graduates, and 7th for engineering graduates. This success in attracting talent can be partly attributed to the strong, unitary brand of the Fraunhofers.
5.2 The UK government must commit to creating an intermediate institution which can develop to be an equivalent draw for talented individuals with scarce skills. This should be achieved through mechanisms such as high-profile commitments from across government, ministerial visits, attractive career paths for researchers, and a high-level of buy-in from industrial employers.
4.
A
mixed funding model which is as self-sustaining as possible
6.1 The Fraunhofer Institutes have a mixed funding model, with public funding through a central grant, individual institutions receiving support from local government, government commissioned work, and private commissioned work. The element of core funding is guaranteed over a period, which, has been suggested to enhance the ability of institutes to take a more long-term and innovative approach to their work programmes.
6.2 The German Fraunhofers still receive a substantial proportion of their funding from public sources (albeit some gained through competitive tender in addition to long-term public commitments) 60 years after their original formation. Continued public funding role is important for longer-term innovation, as research models based predominantly on private research contracts and competitive tenders are more suited to react to technology trends rather than to anticipate them
[2]
.
6.3 In order to viably re-create any of the kinds of successes of the Fraunhofers, each Technology and Innovation Centre would require a longer-term public commitment of funding for up to 10 years in the first instance, with full and informed reviews of progress against clear criteria every three to five years.
6.4 Each TIC would require £10m of funding per year to achieve critical mass, from both public and private sources. In addition, building a portfolio of commercial contracts year on year should also be an explicit target for all TICs.
5.
Strong governance, but contractual flexibility within individual institutions
7.1 The Fraunhofer Institutes are managed on a ‘federal’ model, which provides stability and national profile as well as local flexibility. A single independent board agrees major elements of strategy, and shapes the seven key research themes which stretch across the 60 individual institutions. However, individual institutions have wide powers to negotiate individual research project contracts, and to establish inter-institutional links for themselves.
7.2 TICs should also be seen explicitly as a national level network, with single over-arching governance structures (linked to the strong unitary brand), while allowing individual institutions the flexibility to manage their portfolios of research and development projects independently.
7.3 Because there is less of a tradition of senior science academics in the UK who have also held senior industry positions, it is important that the UK’s TICs have majority industry representation on the governing body, to ensure the centres remain close to the needs of industrial and commercial innovation. Success will also depend on matching these national institutions with local economic strengths as well as the aspirations and plans of the developing Local Enterprise Partnerships and their constituent local authorities.
How does the Fraunhofer model compare to alternative technology transfer systems?
8.1 The primary alternative to the Fraunhofer model is to operate a system of fragmented and specialised intermediary institutions, each associated with particular universities or research institutions. The best example of a fragmented model is the USA, which has a large number of overlapping institutes aimed at specialist areas.
8.2 However, the USA’s larger economy and commercial culture may still allow a fragmented model to have sufficient critical mass, but the UK does not have a wide enough funding base to allow over-lapping focus on many areas at once. From the international comparative data on commercialisation of research cited in the section above, it seems the UK’s weakness can in part be explained by problems of coordination between intermediary institutions within the UK’s innovation eco-system. In his 2003 assessment of the UK’s innovation institutions, US-based academic Michael Porter concurred that the UK’s innovation institutions were both too few and too ineffective.
8.3 Within the UK’s innovation eco-system the Technology Strategy Board has identified more than 60 institutions, agencies or ‘intermediary institutions’ which comprise the UK innovation ‘landscape’
[2]
. These institutions come in many different forms, including:
·
Individual university Technology Transfer Offices (TTOs)
[3]
;
·
Research and Technology Organisations (RTOs) which are independent from Universities; and
·
the Research Councils and public sector research establishments
[4]
.
8.4 Compared to alternative approaches to technology transfer, TICs can strengthen the UK’s innovation eco-system by:
1.
Improving coordination between the various research institutions within the UK’s innovation system;
2.
Strengthening links between research institutions and businesses; and
3.
Developing and following their own research agendas with enough critical mass to achieve viable commercialisation of new technologies.
8.5 We believe that, by following the principles in the previous section, the TICs will demonstrate the value of a more integrated, co-ordinated approach to technology transfer, and result in a more effective innovation eco-system.
n Eco-System in the UK
9.1 If TICs are to succeed in their mission of creating new applied research activities which can significantly contribute to the UK’s future economic performance, then it is essential that they are rooted at the heart of the UK’s future innovation system. This will demand clear strategic planning for: a) the establishment and management of the activities of TICs; and b) their relations to other public and private research and development institutions.
Managing TICs
10.1 The ‘principles’ section above stressed the importance of an independent governance structure for the network of TICs. The ‘federal’ board – which should combine representatives from each TIC with independent business figures – should be established as quickly as possible, so that they can be involved in setting up the new TICs. This should ensure the research priorities are determined by what each board expects to be most commercially successful.
10.2 TICs will require a balance between independence offering medium-term (10+years) freedom to innovate, and (as they will require government capital) proper democratic accountability. So, while the research agenda would ultimately be set by the independent board, the natural path would be for the Technology Strategy Board to assume a medium-term co-ordination and support role as the TIC network develops, with oversight from the Department of Business Innovation and Skills. The Technology Strategy Board would also oversee and support consultation on the appointment of the overall TIC network board, and of any tendering process for the establishing of specific TICs.
Anchoring TICs at the heart of a 21st century innovation eco-system
11.1 If TICs are to improve coordination and commercial performance within the UK’s innovation eco-system, then they can not be a replacement for the existing network of institutions, nor can they risk adding another isolated layer to an already complex system. Instead TICs must complement the existing network by bridging gaps within the innovation eco-system, and providing new links to commercial markets – in essence they must be anchored at the heart of the UK’s innovation-ecosystem.
11.2 The initial £200 million funding for TICs is ring-fenced, meaning that the TICs would not divert cash directly away from other central government-funded institutions. However, the funding for TICs is likely to place pressure on funding for existing research institutions, while they will also act as a competitor for existing research institutions in bidding for public commissions. The introduction of TICs needn’t be a "zero-sum game"– the TICs should be expected to leverage new finance from the private sector and from commercial revenues from their activities. If they work effectively with existing research institutions, the TICs also should be able to support the activities of other institutions, without removing all of the public funding from them.
11.3 Rather than leaving the potentially chaotic impacts of this to chance, a systematic review of the role of intermediary institutions – such as TICs – in the innovation eco-system will be needed. Given the current fragmented picture, this would almost certainly imply a process of rationalisation and consolidation. Action on TICs and all other publicly funded research institutions must be driven by a clear vision of what will drive economic growth in the future. Under such an approach, the strongest performing parts of the existing innovation eco-system should be maintained and strengthened by the new TICs. Only the least effective institutions should be adversely affected. This action will offer the clear leadership that the private sector requires to establish long term frameworks for investment in innovation with the potential to transform our economy.
11.4 Failure to take such radical action to establish TICs at the heart of the innovation system would represent a major missed opportunity, and would dramatically limit the potential positive impacts from public investment in TICs. The place of TICs within the UK’s innovation eco-system should be considered by the forthcoming cross-government growth review.
The Work Foundation is the leading independent authority on work and its future. It aims to improve the quality of working life and the effectiveness of organisations by equipping leaders, policymakers and opinion-formers with evidence, advice, new thinking and networks.
The Work Foundation wish to declare the following:
1.
"The Work Foundation" the trading name for Landec Ltd, a wholly-owned subsidiary of Lancaster University
2.
The Work Foundation submitted a briefing note to BIS in August 2010 entitled ‘Fraunhofer Institutes and Beyond’. Some of the information presented in this document was presented to BIS.
3.
The Work Foundation receives funding from BIS, TSB and NESTA to support its Knowledge Economy 2 programme.
The Work Foundation
December 2010
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