EVIDENCE TO THE COMMITTEE
Clusters
5.8 Our witnesses stressed
the importance of strong science based clusters to the United
Kingdom's economic development, and the importance of a strong
science base at the heart of these clusters. While some interaction
between the science base and companies can use new communications
technologies, the role of the face-to-face meeting is as important
as ever. Mr Castell of Amersham International affirmed that "We
have in the United Kingdom internationally respected academic
establishments. Those establishments are vital if one is to succeed
in the clustering effect ... relationships come only because of
personal contact ... it cannot all be remote work" (Q 143).
5.9 Many witnesses
recognised that science-based clusters have to reach a critical
mass to be successful, and that it may be important that these
clusters are highly diversified. Mr Castell proposed a European
Science Park, a very large cluster around Cambridge, London and
Oxford. This would aim to attract "a great number of multinationals
whether they be in engineering, the motor industry, the aerospace
industry, the IT industry or the chemical industry ... the cluster
has to be rather like Research Triangle Park [in North Carolina,
USA], across a number of universities, because no one university
is likely to have the capacity ..." (Q 158). Other
witnesses recognised that critical mass can be important, but
considered that a venture on this scale was unnecessary, and it
would overshadow successful existing clusters. Professor Gareth
Roberts of CVCP argued that small science parks can be successful
so long as they are clearly focused (QQ 368, 372).
5.10 Chapter 2 of this
report identified a gap in the provision of seed capital which
can arise because investors face high costs in appraising technology
based investments. It appears that this gap in provision of risk
capital is less serious in the strongest high-technology clusters,
such as those in California, because investors have lower overheads.
The frequent informal interchange of technological knowledge
within clusters means that investors are better informed about
technology investments, and therefore face lower costs of appraisal.
5.11 Many of those
who gave evidence referred to the virtuous circle that acts to
generate and sustain the best industrial clusters. Mr Harvey
of BTG also referred to "a mutually sustaining co-existence"
between applied and basic research. "I think the researchers
find that the two sorts of input aid and abet each other, and
they are not in conflict at all" (Q 279). Mr Hugh Thomson
of Strathclyde University and Dr David Thomas of Imperial Exploitation
Ltd also referred to a virtuous circle between the exploitation
of research and further basic research (QQ 306-7).
5.12 The entry of new
firms to clusters is essential to sustain the innovativeness and
vibrancy of a cluster. Dr Garnsey said "there is a different
sort of culture in Silicon Valley where graduates find it positively
embarrassing to work for a big company" (Q 85). While the
Engineering Council were keen to point out that innovation is
not the exclusive preserve of small firms (Q 264), many major
innovations (for example, the microcomputer and the photocopier)
did not start with large firms. It often requires the start-up
of a small entrepreneurial firm to initiate innovation even if
the innovations were subsequently taken up and more successfully
marketed by large firms. New start-up firms are often better
placed to exploit opportunities that emerge across sectoral boundaries,
while existing companies are better placed to exploit opportunities
emerging within their own sector.
Clusters, the Science Base and
Infrastructure
5.13 Many successful
clusters are based around a strong part of the science base.
Strong research teams in research intensive universities are obviously
an important part of that science base, but for companies to benefit
from that research expertise, they must be able to gain access
to it. This has traditionally been much harder for small and
medium sized companies than for large companies (Bank of England,
QQ 250, 258). Some of the new universities have particular
expertise in working with small and medium enterprises, and have
played an important role in helping these companies access research
in the most research-intensive universities (Mr Jay Mitra, Head
of Economic Development, University of North London, Q 302).
5.14 Often the most
successful clusters are self-organising. The Massachusetts corridor
was described as "a natural clustering around academic units
which left their doors open ... not a planned environment, but
it reflects the culture of North America" (Mr Castell, Q 147).
Many consider this model of cluster development more successful
than the science park because of the latter's small scale.
5.15 Research Triangle
Park in North Carolina, by contrast, is "an engineered environment
... where the State fathers wisely saw that if they put within
the triangle three universities in a research grouping, and brought
in mixed skills, chemistry, engineering, IT and pharmaceuticals,
that they could create wealth in North Carolina" (Mr Castell,
Q 147). A number of largely self-organising clusters have
originally been stimulated by investment in science and technology.
For example, the introduction of a computer-aided design centre
in Cambridge (UK) has helped to create a large number of start-up
firms in computer aided design and geographic information systems
companies (Dr Garnsey, Q 79). Over the last 20 years 1,200
new businesses have been created in the Cambridge area, many of
them in telecommunications, software, biotechnology, and the total
turnover of these new businesses is around £1.5-2 billion
per annum. The only comparable development elsewhere in Europe
is at Sophia Antipolis near Nice, which is similar in terms of
new business development, but this "technopole"
has been created as a result of government investment in the region.
Our Report of 1994 on International Investment in UK Science[16]
studied in depth the question of what encourages overseas companies
to locate R&D in the United Kingdom.
5.16 Some witnesses
argued that the Japanese Science City has been less successful
as a way of creating clusters. The best known of these, Tsukuba,
has deliberately been located some distance away from Tokyo.
It appears not to have attracted the best scientific talent, and
because of its isolation it has not really functioned effectively
as a cluster (Mr Castell, Q 147). Unlike the European model
which is generally based on an existing and strong concentration
of leading research centres, the Japanese technopole is
a purpose-built new development and may be located in areas that
are industrially underdeveloped. It must be remembered of course
that the rationale for Japanese Science Cities is rather different
from the rationale for cluster promotion in the United Kingdom:
the Science City was one of the chosen instruments to bring about
the central policy objective of greater industrial decentralisation,
by trying to establish countervailing clusters.
5.17 Some of our witnesses
argued that science parks had been less useful in promoting technology
transfer than had originally been expected. Mr Hugh Thompson
of Strathclyde University argued that some science parks did not
have the critical mass to attract the companies that would contribute
to a virtuous circle (Q 318). It was suggested that some science
parks are really business parks, and were managed as a
real estate investment (Q 321). There was general agreement
that the incubator was a more effective mechanism for achieving
technology transfer from the science base to technology-based
companies, and this is discussed further below.
5.18 A strong infrastructure
with good transport and communications is essential to the success
of an industrial cluster. Indeed, if this infrastructure is good
enough, then the cluster need not be tightly confined to a small
geographical area. Dr Michael Elves of Glaxo Wellcome, speaking
for the ABPI, said that "the concept of a virtual centre
of excellence has a lot to commend it" and this was possible
in the United Kingdom because of our excellent IT and communications
(Q 240). Mr Jay Mitra of the University of North London
also recognised that clusters of industries in and around a university
science park could be connected by "virtual links" (Q
321). In some clusters, notably Research Triangle Park in North
Carolina, the infrastructure has grown up after the cluster started
to grow, rather than the other way around (Mr Castell, Q 147).
Skills and Education for Innovation
and Exploitation
5.19 One of the most
important features of the strong cluster is the ease with which
multi-skilled teams can be formed. Mr Philip Langston of Cambridge
Quantum Fund Limited stressed that in high technology business,
"there is a need for teams who are multi-skilled and in those
teams business awareness and a very good understanding of technology
are equally important. You need the technical skills all the
way through because only the technologists can understand the
potential of their products and hence what problems they can solve
for users. You also need the business acumen from the start"
(Q 80). Mr Langston considered that venture capitalists
can perform an important role in ensuring that teams are multi-skilled
(Q 80). Mr Thomson of Strathclyde University noted that
Business Angels can be as important to the incubator for their
management skills as for their money (Q 326).
5.20 The Bank of England
Report[17]
stressed that innovators need to acquire better business and management
skills, and this point was also made in much other evidence to
us. Equally the Report[18]
noted that, in the opinion of the technology-based firms surveyed,
"finance providers did not normally have an understanding
of the technology they were being asked to finance", and
other evidence suggested that investors needed to acquire a better
understanding of the technologies in which they invest. In this
respect, the movement of scientists and engineers into financial
institutions may be beneficial, so long as they are encouraged
to make active use of their scientific and technological expertise
(Mr Quysner, Q 214). We learned of some initiatives to train
financial managers in technology awareness (see Save British Science
evidence), and such initiatives are to be welcomed. Mutual understanding
between innovators and investors is most common in well developed
clusters, partly because of the more frequent social interaction
between innovators and investors, and as already noted this can
help to overcome some of the gaps in the market for seed capital.
5.21 This Committee's
report of 1991 welcomed the introduction of postgraduate courses
in innovation management (paragraph 10.32), and recommended that
"business schools and other higher education institutions
providing management training should ensure that the importance
of technological innovation to enterprise is fully reflected in
the courses they offer" (paragraph 10.33). Following on
from this lead, the 1993 Science White Paper recommended that
the Economic and Social Research Council should fund the development
of modules for the teaching of innovation on Masters' degree courses
and continuing education programmes in British business schools.
The ESRC set up a programme to produce packages of training materials
covering different aspects of innovation management. These packages
have been widely disseminated by the ESRC Postgraduate Training
Division and are available on the World Wide Web[19].
They have been tested in a number of teaching settings, and the
general response has been good. The programme has also produced
a directory of all courses focusing specifically on innovation
management in British business schools. The importance of innovation
is now more widely recognised in business schools. There have
been a number of other ventures in this direction, including the
growth of entrepreneurship courses and projects, which Mr David
Quysner of the BVCA indicated were very popular (Q 202),
and courses on venture capital. The BVCA have also been active
in visiting universities to talk about their work.
5.22 Our evidence stressed
that there is a need for further collaboration between business
schools and university science and technology departments, and
for business schools to provide business and management expertise
to innovators. This is emphasised in the Bank of England Report
(Recommendations 4, 10) and in evidence from Mr Harvey of
BTG (Q 271). Some business schools have been active in developing
entrepreneurship projects, but further developments in this direction
would be welcome. The CBI Report Tech Stars argued that
the Engineering and Physical Sciences Research Council should
extend its Total Technology Studentships and Engineering Doctorates
to include more emphasis on business and management. That report
also recommends that universities should consider a business club
for collaboration between students in their science and technology
departments and those in business schools. The students would
collaborate on developing business plans for the commercialisation
of new technological developments (Tech Stars, p 26).
5.23 In some universities
and business schools, Business Angels (see chapter 2) are playing
an important role as tutors for such projects (Mr Mitra, QQ 333-4).
It is recognised that one of the obstacles to placing innovation
more prominently on the business school curriculum and equally
to placing business and management teaching on the science and
engineering curriculum is the fact that most curricula already
suffer from severe congestion (ABPI, Q 244), a point also
stressed by the Engineering Council (Q 265). It is also recognised
that the demand for innovation courses in business schools depends
on the degree to which management see it as a priority to acquire
such expertise, and this is not always a top priority for management.
5.24 This Committee's
Report of 1991 also recommended greater interaction in policy
formation between industry and academia (paragraph 10.22). There
has been continued collaboration between research councils and
industry in helping to frame some of the research priorities of
the Research Councils. Written evidence from the EPSRC refers
to initiatives such as the Postgraduate Training Partnerships,
Engineering Doctorates, Research Masters and Teaching Company
Schemes, and most recently to the Faraday Partnerships. Dr Fiona
Steele, Director of the ESRC's Innovation Research Programme,
notes that this programme was the first in the ESRC where the
traditional method of calling for proposals was accompanied by
a "wish list" of questions of concern to the business
people involved in the programme.
Incubators
5.25 One of the most
exciting recent developments in this field has been the emergence
of incubators as an instrument of technology transfer from the
science base to technology-based companies. In the words of the
Enterprise Panel, business incubation "provides firms with
intensive hands-on support to combat the most common reasons for
failure". Evidence on the success of incubators in the United
Kingdom is limited so far, although many more incubator projects
are now being developed, and early indications are very promising.
Experience in the USA, where there are over 900 incubators, suggests
that business incubation is a system that can overcome some of
the most common problems faced by small and new companies. Dr
Sarah Eccles of Therexsys, speaking for the ABPI, said that "the
availability of more technology incubators for the early stages
of the company would be of enormous advantage" (Q 245).
| Box 7: Types of incubator
|
|
| The Enterprise Panel Report identifies four sorts of incubator:
|
|
| (a) The sector-specific incubator which develops businesses in a specific sector (for example Oxford Trust, Campus Ventures in Manchester, Cardiff Medicentre and the Manchester Bioscience Incubator);
|
|
| (b) The incubator that is developed as an integral part of the science park (for example Aston and Warwick Science Parks, Aberdeen Science and Technology Park, Cranfield Technology Park);
|
|
| (c) The general incubator with a mix of different businesses (for example New Work Trust in Bristol, Preston Technology Management Centre);
|
|
| (d) The incubator which concentrates on building businesses by creating management teams to develop specific commercial ideas (Lanarkshire Development Agency, Univentures in Wakefield).
|
5.26 Save British Science
reported that universities can provide a very effective first
stage incubator by providing a stable operating base and technical
support for the development of ideas which may eventually become
the basis for formation of a start-up company. Such university-based
incubators are usually joint ventures, where a university provides
the buildings on their campus and where a company or financial
institution provides the external investment (Q 323), and
several witnesses stressed the value of this public-private partnership
in establishing incubators. Dr Douglas Robertson of the University
of Nottingham said that this partnership was the best way of bringing
together scientific expertise and knowledge of the market place
(Q 324).
5.27 The Enterprise
Panel concludes that the key factors in the success of incubators
are:
(a) links with
universities and/or large companies which are interested in commercialising
their own or others' research;
(b) links with
venture capital companies, both from local Angel networks and
venture funds;
(c) strong local
authority or regional involvement;
(d) involvement
of local educational institutions (at all levels) to provide training
in essential skills;
(e) access to a
local science park where companies can move after graduating from
the incubator.
The Enterprise Panel have recommended
that a Business Incubator Centre be established to act as a catalyst
and facilitator in extracting maximum benefit from the business
incubation process. It is recognised that there are some economies
of scale in the establishment of incubators: the fixed costs for
facilities and incubator management cannot be covered in a small
scale incubator. Moreover, it is recognised that there has to
be a "not for profit" element in the establishment of
incubators, and that re-emphasises the importance of the public-private
partnership.
Customers and Marketing
5.28 Much of the discussion
of the success of new technology-based firms has focused on technology
transfer and the financing of innovation. Another very important
factor in the growth of such firms is their strategy for marketing
and interacting with customers. This Committee's Report of 1991
concluded that companies should be prepared to work in partnership
with customers and suppliers. One of the great benefits available
to firms located in strong clusters is the opportunity to work
with strong and demanding customers in developing world-beating
products and services. Mr Michael Goulette of Rolls Royce, speaking
for the Engineering Council, stressed the importance of developing
strong and responsive supply chains to "connect the market
requirement to the technological opportunity or the business opportunity",
and argued that this was as important as the more traditional
concern with technology transfer (Q 256). Mr Brian Kent, Chairman
of the Board for the Engineering Profession, said that businesses
"make money when market pull equals technology push"
(Q 258). Nevertheless it was also recognised that some of the
most exciting examples of new and responsive supply chains relied
on chance meetings between senior staff from organisations that
had formerly had very little contact. An active dialogue between
design, R&D and marketing is required to match innovations
to market needs, and ensure a market pull to overcome the innovation-exploitation
barrier.
5.29 The CBI Report
Tech Stars suggests that some new technology-based firms
pay insufficient attention to marketing, citing evidence that
such companies spend on average about 16 per cent of their turnover
on R&D but only 10 per cent on sales and marketing. "Significantly,
those companies that do commit most resources to sales and marketing
show the highest growth rates" (Tech Stars, p 15).
And although sales and marketing are essential functions in the
growth and profitability of new technology-based firms, many neglect
these functions. The CBI report refers to a "marketing skills
gap" (Tech Stars, p 16) and recommends that to overcome
this gap, Business Links and incubators should aim to provide
marketing advice and support, Training and Enterprise Councils
(TECs) should encourage the provision of marketing training, and
business schools could target new technology-based firms through
the Teaching Company Scheme.
16 4th Report (1993-94), HL Paper 36-I, ISBN 0 10 477795
8. Back
17 Recommendation
10, p 69. Back
18 Paragraph
4, p 36. Back
19 http://bprc.warwick.ac.uk/rc-inn.html Back
