Science and TechnologyWritten evidence submitted by the Confederation of British Industry (CBI)

Summary

De-risking the innovation process and giving business the confidence to invest in new ideas and concepts is a key element of translating ground-breaking research into new technologies and markets.

The “valley of death” in research commercialisation needs to be approached from both sides: helping to give an extra push to take ideas from research closer to where commercial decisions can be taken more easily, and helping to create a demand-side pull to bring ideas through to market.

Reform of public procurement to seek out and encourage innovative new ideas could transform the pull side of demand in a wide range of markets. Businesses will invest to pull through ideas where there is a clear commercial proposition. Certainty in regulation will also help generate confidence to invest.

As a central part of government’s efforts on the push-side, the Technology Strategy Board needs to ensure its efforts align closely with the needs of industry. It must develop sufficient focus to create a critical mass of activity and use its position in the innovation ecosystem to help link up research with development with public procurement and other new market opportunities.

Introduction

1. The CBI welcomes the opportunity to submit evidence to the Committee’s inquiry. The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce.

2. The difficulty of translating research into commercial application is an established issue and one that has no simple solution. There is a “valley of death” where choices have to be made about which research ideas should be taken further and which should be dropped. During early stage research the overall investment made by a company may be significant, but each individual project will probably represent a small fraction of the whole, so while the likelihood of failure may be high, the financial risk if a project fails is minimised. Developing a research idea into a fully-fledged commercial offering invariably requires a different scale of investment—perhaps even orders of magnitude more investment—and while the risk of failure may be rather lower, the financial consequences of failure on each project are now much higher. The result is that businesses will naturally tend towards developing research ideas that they have higher confidence about. But even here, finite financial resources may mean that good ideas are either left behind or may not be developed fast enough or extensively enough to become a commercial success.

3. The valley of death problem is thus about managing risk and confidence and providing businesses with a degree of competitive advantage in order to invest in new ideas.

4. From the business perspective, there are two approaches to minimising risk and building confidence that will help to bridge, or at least flatten out, the valley of death. The first is to look at factors from the commercial side that will make it easier to pull ideas through. The second is to consider factors that help to push ideas that bit further from the initial research phases to help make commercialisation decisions easier.

5. Government has a role to play on both the push and pull side of the equation, although the focus in the UK has, until recently, been primarily on the very earliest stages of research push. Development of the Technology Strategy Board has seen public intervention in the UK move more effort into the valley of death, although the extent of funding available means this cannot be a panacea. Similarly, government has started to talk about using its public procurement buying power as a demand-side pull driver for innovation, but progress has been limited. These issues are discussed below.

Demand-side Pull

6. Public procurement is one of the most important levers available to government for influencing and directing investment from the demand-side. Even in today’s necessarily constrained fiscal environment, the government purchases around £¼ trillion per year of goods and services. This is in comparison to the roughly £11 billion per year invested in all aspects of research and innovation (including university funding, defence R&D and the R&D tax credit).

7. Securing a public procurement contract can provide the stimulus needed for businesses to invest in developing research ideas and technologies further, helping to bring them through the valley of death. It can also help companies secure new lines of funding and can provide the platform for potential sales to other governments, which in turn can stimulate further investment. But to be effective, public procurement needs to be open to innovative ideas.

8. We have welcomed the establishment and relaunch of the Small Business Research Initiative (SBRI) by the Technology Strategy Board, which seeks to support the development of innovative ideas from smaller companies into procurement, but the scale of this scheme is too limited. Even when the different scales of our economies are corrected for, the US invests around six times as much in its equivalent programme as the UK does. Clearly, SBRI’s primary focus remains SMEs and early stage businesses although competitions remain open to all companies.

9. The economic situation provides a unique opportunity to make more effective use of the procurement budget in order to achieve greater efficiency and long-term savings. The government must become more intelligent as a customer, with decisions being taken on achieving whole life value, not just on short term cost savings. Without breaking any EU procurement rules, the government can also seek other advantages through procurement such as capability development.

10. The CBI has put forward these steps to government as part of the ongoing reform of public procurement needed in the UK:

Streamline the process—ensuring contractors are clear on their requirements before inviting bids and reduce administrative burdens on suppliers.

Incentivise commercial officials to run quick and efficient procurements through increased transparency of timescales and reward those who run successful projects.

Signal the forward pipeline of projects so that businesses can plan ahead with confidence—in particular in areas of long-term infrastructure investment.

Focus on wider outcomes rather than the procurement process, giving providers the freedom to design service packages, holding them to account by making payment dependent on outcomes.

Take whole-life costs into account, ensuring decisions are based on long-term value for money.

Foster innovation by ensuring procurers demand innovative solutions to drive product and service development from suppliers.

Place greater emphasis on wider economic value such as job creation and future investment into developing industrial capability and capacity.

11. The government can also create demand-side pull by establishing or freeing up markets—although appropriate limitations will need to be considered too. Currently, we are looking to an efficient 4G auction that will provide the stimulus to bring forward development in the next stages of telecoms infrastructures and digital content. There are also opportunities in housing, low carbon and other markets where targets and incentives can be used to pull through investment or through promoting open innovation in sectors where the UK is able to build competitive advantage.

12. In any area where government regulates activity, it needs to act intelligently when working with business to create an environment that encourages innovation and helps drive new technologies and create new markets. This can only be achieved through consistency and clear two-way communication with industry around what is expected.

13. Providing certainty for companies through voluntary codes, standards and, where necessary, regulation can act as a real driver of investment confidence, helping to bring forward the commercialisation of innovative ideas. Government needs to:

Inform businesses of future planned changes in the regulatory environment, allowing time to plan and comply with new rules.

Provide a degree of flexibility in how regulations can be met.

Provide clarity in requirements and ensure new rules are not open to misinterpretation.

Ensure poor regulations are dealt with effectively and that additional burdens or conflicts are not placed on business by overlapping or multiple layers of regulation.

Push Factors

14. The Technology Strategy Board (TSB) is clearly at the centre of government’s efforts to help push or accelerate the development of new technologies and it has now become an established part of the UK’s innovation ecosystem.

15. The TSB operates across mid-tier technology readiness levels, where development costs rise and where risk moves substantially from universities and research labs to business. We welcome the TSB’s efforts, but also recognise it is trying to do a lot with only limited resources: it’s annual funding is around £317 million per year, compared to c £4 billion per year for the Science Budget. There is an ongoing need to ensure TSB’s efforts create a critical mass of activity and that they are not diluted by trying to do everything.

16. In our input to the recent Research and Innovation Strategy discussions, we identified a number of areas where TSB could improve to keep its focus on the technology acceleration through to commercialisation mission:

Provide greater transparency around the amount of funding available for specific programmes year by year so that businesses can plan ahead.

Take a more proactive stance on linking R&D investments through to commercialisation—in particular seeking to support the creation of UK value chains and linking investments in research through to public procurement of goods and services (ie not just procurement of R&D through the SBRI scheme).

Undertake a review of priorities with business to ensure that critical mass of activity is being supported, rather than spreading available funds too thinly. This needs to be end-to-end so that early stage funding for basic research by the Research Councils can follow-on with Technology Strategy Board support for development of the most promising areas that business wants to develop.

Build stronger links with technology road mapping activities (such as those undertaken by sector bodies and the government’s own innovation and growth teams) to ensure priorities identified can be supported effectively at the right time

Ensure adequate resources are available for demonstration and proof of concept activities and provide supporting links through to other government funds such as the Regional Growth Fund, Business Growth Fund and Green Investment Bank where appropriate.

Ensure Catapult centres (previously TICs) are run by and for business, that they do not replicate nor displace activity from existing centres of excellence in UK universities and the RTO sector, they map effectively with business priorities and that their business model is appropriate.

Improve links with small and mid-sized companies to increase the effectiveness of knowledge exchange—work through Knowledge Transfer Networks, RTOs, Catapults as they are developed and through supply chains of businesses already engaged with the Technology Strategy Board.

17. Greater realism is needed towards the timescales of TSB competitions. Often these are too short and do not allow enough time for businesses to develop detailed and informed proposals. This can limit the chances of an application meeting the necessary criteria for success.

18. The government, through the TSB and other routes, also needs to help businesses access European research, development and innovation funding. The new Horizon 2020 programme appears to have addressed many of the concerns of business over bureaucracy and relevance associated with previous rounds of the Framework Programme and we are particularly interested in the focus now being placed on technology demonstration. While proposals for Horizon 2020 are still being worked-through, this appears to shift the focus exactly to the ‘valley of death’ area of interest to business. The challenge now is to win over hearts and minds in the business community to re-engage with this effort at European level.

February 2012

Prepared 12th March 2013