- Email: [email protected]
Promoting innovation in industry, government and higher education
Promoting Innovation in Industry, Government and Higher Education Richard Duggan
INNOVATION, 'the successful exploitation of new ideas', comes in many shapes and sizes and is as relevant to people practices as it is to new production processes or products. Akita Morita, then chairman of Sony, began the first Innovation Lecture, delivered to an invited audience at the Royal Society in February 1991, "Science does not equal Technology does not equal Innovation". This pseudo-equation holds true in reverse: Innovation does not equal Technology does not equal Science. The corollaries of these seemingly obvious statements are, however, not as widely understood: "the transfer of technology does not equal innovation" and, in many cases, "innovation occurs without any significant technological development". After intensive study in the UK since 1991, we have concluded that innovation in its broadest sense is about creating the climate or culture which promotes implementation of productive change in order to improve the wealth creating capacity of society; implementing a process which maximizes the chance that new ideas will surmount the hurdles between embryo product and successful achievement; and maximizing the impact of the success. All of this makes the measurement and management of innovation peculiarly difficult and the identification of global best practice more so. If innovation is about cultural change then it follows that changes, and the circumstances leading to the adoption and ultimate success of those changes, will take place within unique systems and cultures. One can draw detailed conclusions about the effects that innovation has had upon any given system, be it production process, product design and development, or issues relating to the management and development of people. However, it is less easy to predict the consequences and probable success of attempting to transfer those practices onto other systems w h e n they are implemented without due regard to the existing culPergamon PII: S0024-6301(96)00042-8
ture or value system. All countries and companies, therefore, will have different methods of managing the process of innovation. For the purposes of this article, I intend to look at some of the work being carried out by the Innovation Unit (IU) of the Department of Trade and Industry (DTI). Its mission, which is to identify and promote best practice in innovation, is probably as good a vantage point as any to survey the UK scene, attempting where possible to fit it into an international perspective. The UK has always been seen as an inventive nation, but it is a frequently made criticism that, whilst it is good at inventing, exploitation occurs elsewhere. Using our definition, we can invent but we cannot innovate. There have been various causes cited for this, ranging from cultural antipathy/ ambivalence towards industry, through low R&D spending relative to our major competitors, and poor Long Range Planning, Vol. 29, No. 4, pp. 503 to 513, 1996 Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/96 $15.00+0.00
management, to short-term behaviour by providers of outdated US case studies. In order to overcome this, capital. What cannot be denied is the effect which and in an attempt to identify what constitutes best this has had on the UK's position in the world. From practice in the UK, the IU has set up a number of being the leading country in terms of gross domestic studies in collaboration with the CBI to identify and product (GDP) per head in the 19th century we have quantify where UK industry currently stands. The steadily declined so that today we rank 17th, behind first study, I n n o v a t i o n q t h e Best Practice, 1 was concountries as diverse as the USA, Japan, Italy, Iceland ducted in 1992-1993 and concluded that only one in and Australia. According to some estimates, the UK ten companies could be described as truly innovative will not even appear in the top 30 by the year 2020, as measured against the definition and against a numalthough initiatives in recent years have arrested the ber of criteria, such as speed of growth, time to market, decline and improved national competitiveness, so overall competitive performance and industry standthe forecasts may be unduly pessimistic. ing etc. This was followed in 1994 by a second study, The analysis is clear, but increasingly people have the Winning report, 2 which sought to identify the been focusing on identifying the cure. What is it that characteristics of those innovative companies. Using is required to boost the UK's competitive position? a methodology designed by the Warwick ManuHow can we move up the international GDP league facturing Group at the University of Warwick, structable? When looking at the number of world-class tured interviews led by IU secondees and supported companies in the UK, we compare favourably with by officials were held with the senior executives of Germany or Holland. However, where we fall down 121 companies across the UK. Care was taken to in comparison with our competitors is the long tail of ensure that there was a suitable mix of company size companies that perform significantly worse than the and that both the manufacturing and services sectors international average, and there is a real urgency in were covered. The results were then collated and ensuring that British companies move much nearer analysed. to the best performers in the way that they operate. Despite the diverse nature of the companies taking To help in this process the IU was founded in 1991. part five key messages, applicable to all 'winning' It presently consists of 15 senior, experienced indus- companies, emerged: trialists, drawn from a wide range of disciplines, C3 They are led by visionary, enthusiastic champions working along side a similar number of full-time of change. officials. Secondments to the IU last on average about Q They unlock the potential of their people, creating 2 years. The mission of the IU is: a culture in which employees are genuinely To promote the adoption of market-driven innovation as the key empowered and focused on the customer, investto increased competitiveness and sustained wealth creation. ing in people through good communications and training, and flattening and inverting the organThe strategy to achieve this mission is "to create a izational pyramid. climate within which a culture of innovation can [3 They know their customers, constantly learning flourish: from others and welcoming the challenge of • in industry and business; demanding customers to drive innovation and competitiveness. • in government; C3 They constantly introduce new and differentiated • within the knowledge base; products and services, through a deep knowledge of their competitors, encouraging innovation, and • within the finance community; focusing on core businesses, complemented by • amongst the public and the media; strategic alliances. • in education". C3 They win by exceeding their customers' expectations. These are the so-called '6 planks'. These findings can be summarized in five simple words:
1. Innovation in Industry and Business--Best Industrial Practice One of the problems which the IU has had to face is that innovation has not been a searchable topic in the directory of UK academic and business courses. This is symptomatic of the fact that there is no authoritative peer group mechanism which distils best practice in industry and academia. Some work is done in innovation management, but this is often based on
Change - E m p o w e r - Learn - Innovate - Win. Supporting the earlier work, nine out of ten of the companies which took part in the survey exhibited the characteristics identified in I n n o v a t i o n - - t h e Best Practice. The findings of the survey have been validated not only by those companies which participated originally, but also by the very many companies and organizations that have subsequently read the report and sought to adopt its findings.
Promoting Innovation in Industry, Government and Higher Education
Moreover, they underpin the strategic framework that the DTI is working to put in place with regard to the relevance and delivery of all its support mechanisms for UK industry. More detailed work has subsequently focused on the manufacturing sector. Using the same methodology as the Winning report, the 81 Training and Enterprise Councils (TECs) throughout England and Wales surveyed 561 companies. The results from this, written up in the Manufacturing Winners, 3 bore out the messages of the Winning report. However, significant gaps, particularly in areas such as leadership and competitor awareness, emerged between the 'best' and the rest. At the same time the findings of the report were supplemented with data drawn from the 'Best Factory Awards' and obtained from Cranfield School of Management, When combined with the more behavioural aspects of the survey they provide a powerful tool in demonstrating what can be achieved if the key messages of 'winning' and 'manufacturing winners' are adopted. The best performers are an order of magnitude better than the average in many criteria: speed of changeover, stock turns, quality rejects etc. The difference between the 'average' (and it is important to note that the average is of those factories which have put themselves forward for the award rather than the average of all UK factories) and the best 10% of the same self-selecting group is startling. The rate of new product introduction is up to 10 times higher in the best, their stock turn is often double the average and added value per manufacturing employee is also double. See Figure 1. To improve the wealth-creating capacity of UK industry requires a step-change in attitudes and per-
Process Sector benchmarks Average Top performance 25% reliability
/
Manufacturing added-T
/
72~
11
value per manufacturing employee (£000)
/
Total stockturns
/ 1__0 -__ - ~
I
/
7%
55%
1.3% 0.4% 90
140
I
/
11
2. Innovation and the Finance Community During the 1980s part of the dissatisfaction with Britain's relatively poor record in translating invention into innovation was focused on perceived problems in the relationship between the providers and consumers of capital. These included the difficulties faced by inventors looking to raise funds for scaleup, exacerbated by their unwillingness to take loans conditional on external advice on good business practice. For stable companies with sound financial backing a particular problem was that the high and fluctuating interest rates made it difficult to make the type of investment to improve future earning, schemes which could be easily justified in lower inflation countries. In recent years this problem has receded but such investments are still broadly lagging competitive companies, and can have a cumulative effect on competitiveness. For smaller companies, a particular problem has been the funding gap for amounts between £150,000
Process Sector benchmarks Top 10%
I 88% I 97.5% 99%
New product introductionl 2% I over last 5 years (new product/product range) I I scrap rate I 5.8% I
formance of the vast majority of companies. The research conducted by the IU shows what are the key ingredients of industrial best practice, and together with the Cranfield data, illustrates the results of embedding innovation into the company. The findings are now being incorporated into many of the IU's activities and underpin the National Benchmarking Service that the DTI wishes to launch through Business Links in 1996.
19
IC
apacity used for I changeOvers
Average Top performance 25% I 8% i 2% I I
Average component set-up time (min)
I 188 I
Average assembly set-up time (min)
~ ~ ~ - - -6- - I I
I I
15
Training on job (days) I-- - - --1 - - - - - • Existing employees I 4 I 5 • New employees I 21 I 30 [ Absenteeism
t
--J
Long Range Planning Vol. 29
Top 10% 1% 10
-2lO 42
-23-o/oI-1
August 1996
and £3 million, where the costs of due diligence on the part of the venture capitalist were simply too high in proportion to the expected return and, for quoted companies, the apparent demands of institutional investors for dividends at the expense of long-term investment for future growth. Envious glances were cast overseas, particularly towards Germany and Japan, which appeared to have a far more supportive approach towards industry and innovation. However, it must be recognized that financial systems are just as much the product of the unique history and culture of individual countries as industrial ones, and this makes it difficult to identify elements of global best practice in the financial world. Elements of any given system that are admired need to be seen in the context of the system in which they flourish. Attempts to transplant these elements wholesale into another system, however, usually end in failure because the cultural issues that gave rise to that practice are ignored. This is not to say, however, that no effort should be made to identify funding practices in other countries that appear to work well. Rather, that when attempting to introduce them to the UK's system due regard needs to be paid to the existing structures and the practices adapted accordingly. The provision of the correct type and amount of finance is a key element in the innovation process for both large and small companies. Arguably one of the reasons for the superior performance of companies in Japan and Germany is that they have a better record at accessing the right sort of finance. Traditionally in the UK small and medium sized companies have relied upon banks to provide overdraft facilities for virtually all of their financing needs, whether this is suitable or not. This has left companies overly vulnerable to interest rate fluctuations in times of economic downturn. Moreover, as on-demand facilities they are liable to be reduced or withdrawn by the banks as levels of bad debts mount in times of recession. Best practice suggests that companies, especially small ones, need to be much more alert to the requirement for the correct mix of finance, be it debt or equity, when considering their next stage of growth. One approach has been pioneered by the Innovation & Growth Unit of the National Westminster Bank. It has developed its 'wheel of investment' as a tool to assist companies in determining the correct financial package. It looks not only at the traditional banking products such as overdrafts and loans but also at the various grants available, and the need perhaps to access equity from external sources, be it a local 'business angel' or a venture capital fund. The mix is tailored to the specific requirements of the company and altered as the company grows and its needs change. Finance for start-up companies, especially hi-tech or bio-pharmaceutical, is fraught with risks that corn-
mercial banks are understandably reluctant to take. As noted above, the 'wheel of investment' is one response to this. In the US the Securities Act has recently been amended to allow banks to bundle-up non-government guaranteed loans to small businesses and through a securitization programme sell them into the wider investment market. This has two benefits: I. it enables the banks to lend to companies that w o u l d not normally meet their risk criteria and then lay this risk off in the market; 2. it frees up banks' capital to lend more money and thereby support more growing businesses. Suitably modified there is no reason w h y such a programme could not work in the UK. Unfavourable comparisons are frequently drawn between London and Frankfurt or Tokyo when it comes to the provision of long-term finance for industry to fund long-term investments and R&D. The City's appetite for dividends, compared with our international competitors, is frequently alleged to be one of the main causes for the decline of the UK's engineering and physics based industries. Research has shown these criticisms to be largely unfounded. Comparisons with Germany and Japan frequently fail to take into account the different financial and ownership structures, where shareholders' legitimate concerns and returns to them come very low in the order of corporate priorities. Pension funds in the UK are at least as long-term as their international counter-parts, on average holding shares for over 8 years. But the perceptions matter in that they do influence the behaviour of management within those companies. The establishment of models of best practice for companies and their institutional investors in the report Developing a Winning Partnership 4 sets out how companies and investors should manage their relationship. The emphasis is on full and open dialogue on both sides, with the companies setting out their longterm plans for growth and the institutions explaining their reasons for investing and their expectations of returns in the light of the companies' strategy. Through such measures companies can confidently invest in innovation, knowing they do so with the backing of their owners.
3. Innovation and the A c a d e m i c Industrial Interface Of the wide role of the universities in society, only their role in wealth creation is considered is this article. In this respect 'best global practice' may be represented by the small group of American universities, such as Stamford and Massachusetts Institute of Technology (MIT), which consciously play a role in wealth creation for the state and the nation. An estimate by University of Manchester Institute of Science & Technology (UMIST) Ventures, which is itself
Promoting Innovation in Industry, Government and Higher Education
seeking to emulate the approach of MIT, illustrates the major contribution of MIT to US industry: O O O O Cl
US$2.4billion net worth 100 licences per year 20 companies founded per year 600 companies founded overall Annual sales (1992)--$45 billion from businesses created by alumni or with MIT technology O Employment--300,000 jobs O Trend--number of new companies doubling each 10 years
In this sense no British university would claim to be within orders of magnitude of this achievement; yet the quality of UK academic thinking and the size of UK university clusters of appropriate quality is not dissimilar. In a recent innovation seminar at Swansea, Professor Gray of MIT offered an explanation of the difference. "The Charter of MIT has been directed to wealth creation for the State of Massachusetts--British Universities have a prime focus on creation of fundamental knowledge and the training of students for high quality academic performance."
In the last few years there has been a major change in relationships with British academia in which government policy has been instrumental, the White Paper Realising our Potential, the subsequent reorganization of the funding councils and the launch of the "Foresight" exercise all playing helpful roles. A dilution of the academic excellence of the universities would be disastrous, but improvement is needed in the leveraging of knowledge from academia to business, particularly small business. A range of recent initiatives has been designed to improve the linkage between those producing educated, trained and skilled people and generating fundamental knowledge, and those employing these people and seeking to exploit the knowledge. With the diversity of characteristics of the universities, and the sectors and industries they serve, a range of best practice models is the most desirable outcome. The role of universities is defined in a report to Yorkshire and Humberside Vice Chancellors (1995) by: Cl Educate students to standard of excellence in their chosen profession. Cl Prepare graduates for research skills to world class standards. ~3 Add to the stock of fundamental understanding. ~3 Act responsibly as a major regional employer. Some universities are ideally suited for this focused role. For others, a wider role is desirable from the additional 'menu' presented to the Conference of Vice Chancellors (1995): ~i Play a national and regional role in providing the advanced skills base for industrial development.
O Enable graduates to acquire an applied skills base to 'hit the ground running' in smaller industrial enterprises 0 Leverage knowledge base to provide an engine for wealth creation on the scale of MIT. O Be at the forefront in satisfying the evolving need for 'lifelong learning'. O Help create the interface to all British industry, not just the academically literate part. Most universities, sometimes guided by requirements for funding, have improved their liaison with industry via joint programmes, teaching company schemes, sandwich course projects; but there are major weaknesses for which new structures or networks are needed. There are approximately 3million companies in Britain of which only a small proportion have a graduate R &D resource (see Table 1). Most university liaison is with the 3% of larger companies which are 'academically literate'--yet it is a national priority to leverage knowledge from academic and world-class companies to raise the standard of a much larger group of companies and sectors. In the last few years there have been excellent initiatives to widen the scope of interaction. The Teaching Company Scheme, which has arranged 2000 industry-academic partnerships since its inception in 1975, has steadily expanded and is now focused on developing links with smaller and medium sized companies with less than 200 employees. The university industrial liaison officers have formed a single association (AURIL) to focus attention on best practice. The new universities often have very close links with industry. Many of the old established universities are building up links via 'industry clubs', science park links and student placement. The Vice Chancellors Group would like industry to give priority to creating more opportunity for good projects in industry which would enable a much wider use of sandwich course schemes. One major new initiative has been "Foresight". Academics, industrialists and experts from service, public and private organizations have worked together in 15 sectors covering a substantial majority of the wealth generating base of British society. Over 10,000 people have participated extensively to produce sector reports forecasting predictable development over the next 15 years in areas ranging from likely scientific capability advances to the potential implications within society. A "Dephi" exercise has been used to check that the initial conclusions within sectors properly accounted for rapid developments in other areas. While "Foresight" was designed to assist the focus of academic resource towards areas of maximum relevance, there are already short-term spin-off benefits. The level of collaboration between academia and industry has increased, the dissemination process is involving a widening range of Long Range Planning Vol. 29
August 1996
Management structure
Cos (%)
Employees (%)
Wealth creation (%)
1-20 20-50
Individual 2-3 managers--consensus
78 11
13 12
11 17
Team led Companies
50-150
8
25
24
Resourced
150-500
Management, functional, direction, finance, production, sales, marketing, human resource As above with R & D, design and training established
2
20
25
Large Corporations Multi-nationals
500-2000 2000+
1
29
24
Classification
Small Small firm Managed firm
No. of employees
Medium
Full in-house resource
small companies and members of the academic community, and there is spontaneous pressure for the initiative to continue and extend. Overall though, while there is substantial improvement in relations between academia and industry, there is still much to be done to widen the penetration of the UK knowledge base into the small and medium size enterprises (SME) sector of companies in the UK. Apart from the training role, university liaison tends to concentrate on technology transfer, yet wealth creation requires innovation and successful commercialization, and most failures in moving from an idea to successful exploitation occur due to lack of understanding and attention paid to the other aspects of the business mix; not to unsuccessful transfer of technology.
4. Innovation Project Management Steering through the stages of an inventive idea to success in the market place needs high quality innovation project management, and yet this vital applied discipline is hardly recognized and not taught outside individual companies and a few industrial-academic partnerships in the UK. To turn ideas into successful marketplace outcomes is a difficult task which requires an ever evolving expertise base managed by top-class people devoted to identifying, consolidating and promulgating best practice. The cadre of expertise which is built up by having expertise centres focused on industrial outcome rather than academic publication as the prime measurable success was one justification for the original "Faraday Centre" proposals--and is a benefit of appropriate institutions in Continental and North American countries. 'Bricks and mortar' Faraday Centres were rejected at this stage of UK industrial and academic devel-
opment, but there has been encouragement for projects which embrace Faraday principles. The key Faraday principles are: F3 The two-way flow of industrial technology and skilled people between the science and engineering base and industry. CI Partnership between the industrial research organizations and the science and engineering base. (3 Core research underpinning product and process development. (3 Industrially relevant post-graduate training. There have recently been noteworthy experiments to build academic-industrial liaison based on Faraday principles, e.g. post-graduate training partnership (PTP) schemes, and the scope of the schemes has recently been extended. One version which also captures training on innovation project management and leveraging knowledge to small companies is Faraday North West which has the following features: Cl The overall project reports to the North West business leadership team with a board consisting of the CEOs of many of the regions leading industrialists--hence industrial relevance. E3 The structure is based on 'link' type master projects between a competent company and a univ e r s i t y - b u t with the PhD student leading the project trained in innovation project management skills. Cl A cluster of small companies who can benefit from access to the equipment and knowledge base of the project but not the 'proprietary knowledge' outcome are given access to the project, and the coordinator has a responsibility to help solve their immediate problems via 'clinics' networking and visits.
Promoting Innovation in Industry, Government and Higher Education
Q The network of project managers under the guidance of the Faraday Director can exchange experience and begin to build a body of best practice supply expertise which is so lacking in the current UK system. Hence the goals of leveraging high quality 'commodity knowledge' to a much wider group of UK industries--developing practical experience in innovation project management and locating the overall administration within a highly commercially oriented structure--are all addressed.
5. The Role of Universities in 'Lifelong Learning' The 'half-life' of useful technical knowledge is shrinking, and new strategies for management and staff to stay up to date for life are required. 'Lifelong learning' and 'continuous professional development' concepts seek to meet these needs, and universities recognize that the characteristics of their 'student' are changing. Short courses to enable graduates to 'top up', holistic approaches to industrial training, distance learning in which the Open University with the BBC hold a world leadership role and flexible short course study leading to post-graduate degrees or portable qualifications are part of a battery of approaches designed to meet these customer requirements. Here best practice is represented by universities working with individual customers or representative groups to tailor-make courses to meet customer needs. Warwick University has been a leader in this area, the new universities are also well positioned; the "TEAM" programme involves 15 universities collaborating to offer short courses in 60 subject areas, leading in realistic industrial training timescales to MBA or MSc qualifications based on 10-12 short courses with one longer project. In Trafford Park Manchester, the five universities, the TEC and six major
companies lead a consortium, "The Trafford Park Manufacturing Institute (TPMI)" to pool training resource and offer to any interested company tailor~ made training for a wide range of manufacturing based training skills--from 'shop floor' behavioural approaches through to post-doctoral projects. A manufacturing diploma accredited by the universities and targeted at experienced manufacturing staff lacking overview on modern technology has been the product in greatest demand at TPMI. Many universities have integrated graduate development schemes to offer ongoing development to graduates already in work. The engineering professional associations have been particularly proactive in encouraging graduate engineers and technicians to be involved in continuous professional development. The rapid improvement in IT and multimedia based learning strategies make the whole area of top-up training a rapidly changing scene.
6. The Virtuous Triangle of Development An overall problem remaining for Britain to fully exploit its expertise base, however, is in the close linkages needed to develop an applied area which would require a close interactive relationship between industry, academia and business schools (see Figure 2). Such a prestigious peer group review m e d i u m does not exist. However, there are promising signs. Among a number of positive research council initiatives, the ESRC has just developed a framework for innovation training in collaboration with six leading business schools, and the innovation programme of research for ESRC has a joint academic-industrial steering group to advise on programme selection.
Long Range Planning Vol. 29
August 1996
7. Innovation and the EducationIndustry Interface Within the overall education process, it is important for the young citizen to have an appreciation of the role of wealth creation in contributing to and enhancing overall quality of life. In an external world which is increasingly technological, there seems room for improvement in presenting the issue within the UK education scene: [::1 Far fewer children have aspirations to enter industry than in, say, Germany. [3 A declining proportion, particularly of the most talented, opt for science or technology courses at 'A' level, so that university departments cannot fill their available places without relaxing entry requirements. O The engineering profession in particular feels that the relatively poor public perception of the importance of high quality engineers adversely affects recruitment. Within industry, the 'two nations' culture has contributed to a situation in which technological issues are regarded as 'specialist' in many companies, hence not within the scope of general management attention. Industry recognizes that it must play a role in re-establishing a positive perception: many initiatives have been taken to provide material to make the topics interesting and appealing. The Engineering Council has been particularly proactive with many initiatives involving engineers working with schools on projects of real commercial value: "Action for Engineering" is a programme with major initiatives in the education area: [3 To develop more interest among school leavers, parents and teachers in the merits of engineering as a rewarding career; stronger industrial links as part of the curriculum and better publicized rewards are part of the proposed mechanisms. O Improve student performance in key topics, particularly maths. O Better training and continuous development for professional engineers and technicians. O Encouragement to industry to broaden careers for engineers at an earlier stage. The Chemical Industry Association has a major outreach programme under the banner "Responsible Care' '--and requires any member to achieve stringent standards and publicize them via site visits, open days etc. As a programme more directly focused on children, it has worked with Halton Borough and major local companies to provide a m u s e u m of the chemical industry 'catalyst' where the impact on society of the chemical industry from the early days of development to modern times are illustrated. The
museum, itself an historical chemical industry building, is located within sight of many of the pioneering chemical companies of the 19th century. Parties of school children undertake educational projects at the museum, and 17,000 were involved in 1994-1995. ~3 SATIS--an arm of the 22,000 strong association of science teachers--produces material to supplement the National Curriculum for children of all ages. The material is generated by leading industrialists and academics and translated into 'childspeak' by experienced child communicators. This material is sold in loose leaf binders and schools purchasing one set can duplicate freely without infringing copyright. O Major companies and trusts and professional bodies set education's liaison as a key priority for external affairs. O The SET week sponsored by the Office of Science and Technology acts as a focal point for many events and considerable positive media attention. Videos and films sponsored by government departments are shown on Open University channels for use by teachers. A natural tendency of companies perceiving a poor public perception of their value among the young is to commission 'wonderful material' to inform children of their worth. However, there is, in general, a bewildering Aladdin's cave of such material available--and best practice resides in initiatives which help teachers select and deliver such material, recognizing that the demands of the National Curriculum on their own and their classes' time means they must be very discriminating. There is a debate within education on the merits of the relative degree of specialism required in 'arts' or 'science' subjects in England compared with France, Scotland or Germany. For example, The Salters Institute which co-ordinates many groups involved in education liaison, under the chairmanship of the distinguished scientist Lord Porter, recently called for changes to broaden the width of subjects required for sixth-form training. One particular issue in the UK is provision of people qualified in practical as opposed to academic topics. A recent CEST report concluded that British and German educational output were similar in many respects with this one exception: there is no equivalent in Britain to the qualification of the "Meisterwerker" in Germany; and this highly practical expert at or just below graduate level is a key requirement in many industrial and academic roles. The NVQ and GNVQ initiatives in the UK may address this issue in the long term. While Business Schools are growing in terms of the number of MBA students and in the variety of courses offered, relatively few have addressed the issue of innovation in depth, and there is little interaction
Promoting Innovation in Industry, Government and Higher Education
between the management schools and manufacturing and engineering faculties. American experience indicates that management, technological and entrepreneurial skills are all required in close partnership to maximize the value of successful n e w ideas. New initiatives are underway in this area, as noted at the end of Innovation and the Academic-Industrial Interface (Section 3).
8. Innovation and Public Understanding, Including the Role of the Media The importance of innovation--which requires embracing a culture of constant chance--is not well understood within a society traditionally insulated from the rapid pace of development in the more geographically remote competitor nations. Resistance to change has indeed been practical policy within many parts of society, even those involved in training the generation which must cope with and thrive within the n e w paradigm. The media plays a key role in forming an understanding of the necessity of change. In the last decade the importance of innovation has increasingly been appreciated by the professional business and society based media. The IU tracks citing of innovation; this has increased dramatically since first measurements in 1991, and the tone of the contributing features have been far more positive. To command media attention often requires a 'hook' for a story, and there are now well established 'set piece' innovation events: o The Annual UK Innovation Lecture by a worldclass innovator is now broadcast on satellite TV to invited audiences nationwide. In 1996 an audience of over 3000 senior businessmen, academics, public sector and media staff etc. viewed the lecture delivered simultaneously in 29 locations. O The R&D Scoreboard--widely analysed in the major business oriented newspapers--focuses attention on which companies and sectors are investing for future innovation. This has an importance beyond the issue of R & D as it is the only quantitative indication in the public domain of the preparedness to allocate resources for the generation of future profit streams, as well as delivering short-term results. In some sectors this has been reported to have had a positive effect on the quality of discussion between management and institutional investors. cl The Innovation Writers Awards promotes the realization that competent journalism can be highly effective in translating 'inventions' to innovations. Cl At a regional level there are many innovation
awards which raise the awareness of innovation amongst small companies. Some of these are sponsored by major companies which sends a useful message to their employees, their supply chain and their customers. [3 At governmental level the commitment to innow~tion is signalled in Government White Papers, notably the 1st and 2nd Competitiveness White Papers, the "Realising our Potential" and "Foresight" initiatives. These publications are followed by resource allocations and initiatives by many parts of the civil service and governmental offices, the TECs and the Business Link structure. The extensive round of speeches by ministers, programmes such as "Managing in the 90s", the talks and presentations by IU industrialists and the media articles and programmes triggered by these initiatives all contribute to raising industrial and public awareness. Paradoxically, establishing Science & Technology or even industry itself as a backcloth to normal life as portrayed within the broadcast media has been less successful: the architypical scientist is small, balding, with unruly hair and an Austrian accent--Einstein has a lot to answer for! Industry is hardly visualized except as a polluter or corrupt manipulator as a backdrop to the world of soaps and situation dramas portraying normal life. Portraying the wealth creating arm of society in a realistic way seems an important goal in achieving more favourable attributes in society. In countries with other cultures, the status of technologists and industrialists is higher, e.g. in Holland and Germany; but the adverse perceptions of the contribution of industry appear also stronger, e.g. in environmental areas.
9. Innovation and Government/ Civil Service In extolling the rest of society to embrace a culture of constant change and improvement, it is axiomatic that government departments should practice what they preach. There are many real differences between the mission and purpose of roles in the civil service and the public sector in general compared with industry; there are, however, many areas of overlap where identified 'best industrial practice' is equally relevant to public sector practice. The intermingling of people from industry and the public sector happens increasingly, to mutual benefit. Of all areas, it is most appropriate that this process is well advanced in the DTI, which is trying to define and stimulate adoption of industrial best practice and should therefore be at the forefront of exploring and encouraging adoption in Long Range Planning Vol. 29
August 1996
the public sector. An increasing number of industrialists on secondment have been brought in and are playing a role in changing culture and translating best industrial practice into civil service approaches. Departments have applied for the "Investors in People" award. The best practice distilled from the Winning report are used to encourage self-monitoring of departmental performance: international benchmarks among the analogue organizations to, for example, the DTI in other countries are encouraged. The establishment of the new Government OfficeTraining & Enterprise Council-Business Link structure now provides a m u c h more customer orientated 'route to market' for government initiatives to reach the smaller and m e d i u m sized companies; and their views are more effectively translated, distilled and fed back to government. Again, the lessons from the Winning report are being used to help improve the effectiveness and efficiency of this process, including the design, marketing and delivery of initiatives and the relationships between the various partner organizations. Within the widespread activity in the DTI, the role of the IU is to use the strong relationships with companies, other organizations and regions, to help define, codify and prioritize best practice. The mission is "To work towards the achievement of an innovative public sector that encourages and exploits ideas for continuous improvement and that develops and maintains effective customer focus." A most important role is to focus on the few issues which industry, particularly SMEs, identify as of most importance. Then the IU helps with research to quantify and validate approaches, it works with other parts of the DTI and other departments to produce best practice procedures, helps validation, e.g. through Business Links and uses the 'multipliers' via contributions to White Papers, ministerial speeches, presentations to industrial and other audiences by IU members, videos, tapes and contact with media to help promulgate the message. The major work of dissemination is done through other parts of the DTI and other departments and thus good working relationships, mutual respect and influence are key requirements. The IU itself must be an exemplary organization practising the methods and cultures it promotes. The industrialists play a role in importing latest 'best practice' expertise, but the officials have a more crucial
role to play in helping to translate these approaches into relevant approaches for public sector organizations. To this end the IU is working with the Citizens Charter Unit and contributes to the Civil Service College. Key priorities at present include promoting the culture captured by the Winning report: t3 Change--Empower--Learn--Innovate--Win. ~3 Supporting the focus on simplification and customer targeted dissemination of practices which have proved most effective in helping successful growth of companies, particularly smaller companies. r3 Supporting the widespread movement in the DTI towards better people and management practices, including Investors in People. For industrialists, rules and procedures deriving from concepts of'public accountability' and 'additionality' are one of the major differences compared with private sector experience, but on all sides there is a will to overcome barriers and 'move with the times'.
10. Commentary Innovation is firmly on the agenda in the UK. Compared with the time of m y first exposure to the issue at a national level as a member of the Government Advisory Committee (the Innovation Advisory Board 1988--1991), the situation has now changed remarkably. Academic attitudes are far more supportive with m u c h more buy-in to the wealth creation agenda and the regional importance and responsibilities of universities. The city-industry relations have improved, the GO-TEC-Business Link system provides a 'route to market' for a two-way dialogue for small companies and public and media attention is m u c h higher. However, as the current EC Green Paper on innovation points out, the speed of progress in Asia and America means that competitively Europe, including the UK, has to run even harder to do better than stand still. By fully realizing our potential we can survive and thrive. A chapter entitled "Innovation and TechnologyForesight" which is, in part, based on this material appears in StrategicManagement of Science &Technoloy, Prentice Hall, EnglewoodCliffs,NJ (1996). All reports cited in this article are available from The Innovation Unit, Department of Trade & Industry, 151 Buckingham Palace Road, London SWlW 9SS, UK.
Promoting Innovation in Industry, Government and Higher Education
References 1. Innovation--the Best Practice, Joint study by the Technology Group of CBI and the Innovation Unit of DTI.
2. How the Best UK Companies are WINNING, Joint CBI/DTI study. 3. Manufacturing Winners, TEC National Council. 4. Developing a Winning Partnership, Joint City-Industry Working Group under the Chairmanship of Paul Myners of Gartmore plc.
Long Range Planning Vol. 29
August 1996
INNOVATION, 'the successful exploitation of new ideas', comes in many shapes and sizes and is as relevant to people practices as it is to new production processes or products. Akita Morita, then chairman of Sony, began the first Innovation Lecture, delivered to an invited audience at the Royal Society in February 1991, "Science does not equal Technology does not equal Innovation". This pseudo-equation holds true in reverse: Innovation does not equal Technology does not equal Science. The corollaries of these seemingly obvious statements are, however, not as widely understood: "the transfer of technology does not equal innovation" and, in many cases, "innovation occurs without any significant technological development". After intensive study in the UK since 1991, we have concluded that innovation in its broadest sense is about creating the climate or culture which promotes implementation of productive change in order to improve the wealth creating capacity of society; implementing a process which maximizes the chance that new ideas will surmount the hurdles between embryo product and successful achievement; and maximizing the impact of the success. All of this makes the measurement and management of innovation peculiarly difficult and the identification of global best practice more so. If innovation is about cultural change then it follows that changes, and the circumstances leading to the adoption and ultimate success of those changes, will take place within unique systems and cultures. One can draw detailed conclusions about the effects that innovation has had upon any given system, be it production process, product design and development, or issues relating to the management and development of people. However, it is less easy to predict the consequences and probable success of attempting to transfer those practices onto other systems w h e n they are implemented without due regard to the existing culPergamon PII: S0024-6301(96)00042-8
ture or value system. All countries and companies, therefore, will have different methods of managing the process of innovation. For the purposes of this article, I intend to look at some of the work being carried out by the Innovation Unit (IU) of the Department of Trade and Industry (DTI). Its mission, which is to identify and promote best practice in innovation, is probably as good a vantage point as any to survey the UK scene, attempting where possible to fit it into an international perspective. The UK has always been seen as an inventive nation, but it is a frequently made criticism that, whilst it is good at inventing, exploitation occurs elsewhere. Using our definition, we can invent but we cannot innovate. There have been various causes cited for this, ranging from cultural antipathy/ ambivalence towards industry, through low R&D spending relative to our major competitors, and poor Long Range Planning, Vol. 29, No. 4, pp. 503 to 513, 1996 Copyright © 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/96 $15.00+0.00
management, to short-term behaviour by providers of outdated US case studies. In order to overcome this, capital. What cannot be denied is the effect which and in an attempt to identify what constitutes best this has had on the UK's position in the world. From practice in the UK, the IU has set up a number of being the leading country in terms of gross domestic studies in collaboration with the CBI to identify and product (GDP) per head in the 19th century we have quantify where UK industry currently stands. The steadily declined so that today we rank 17th, behind first study, I n n o v a t i o n q t h e Best Practice, 1 was concountries as diverse as the USA, Japan, Italy, Iceland ducted in 1992-1993 and concluded that only one in and Australia. According to some estimates, the UK ten companies could be described as truly innovative will not even appear in the top 30 by the year 2020, as measured against the definition and against a numalthough initiatives in recent years have arrested the ber of criteria, such as speed of growth, time to market, decline and improved national competitiveness, so overall competitive performance and industry standthe forecasts may be unduly pessimistic. ing etc. This was followed in 1994 by a second study, The analysis is clear, but increasingly people have the Winning report, 2 which sought to identify the been focusing on identifying the cure. What is it that characteristics of those innovative companies. Using is required to boost the UK's competitive position? a methodology designed by the Warwick ManuHow can we move up the international GDP league facturing Group at the University of Warwick, structable? When looking at the number of world-class tured interviews led by IU secondees and supported companies in the UK, we compare favourably with by officials were held with the senior executives of Germany or Holland. However, where we fall down 121 companies across the UK. Care was taken to in comparison with our competitors is the long tail of ensure that there was a suitable mix of company size companies that perform significantly worse than the and that both the manufacturing and services sectors international average, and there is a real urgency in were covered. The results were then collated and ensuring that British companies move much nearer analysed. to the best performers in the way that they operate. Despite the diverse nature of the companies taking To help in this process the IU was founded in 1991. part five key messages, applicable to all 'winning' It presently consists of 15 senior, experienced indus- companies, emerged: trialists, drawn from a wide range of disciplines, C3 They are led by visionary, enthusiastic champions working along side a similar number of full-time of change. officials. Secondments to the IU last on average about Q They unlock the potential of their people, creating 2 years. The mission of the IU is: a culture in which employees are genuinely To promote the adoption of market-driven innovation as the key empowered and focused on the customer, investto increased competitiveness and sustained wealth creation. ing in people through good communications and training, and flattening and inverting the organThe strategy to achieve this mission is "to create a izational pyramid. climate within which a culture of innovation can [3 They know their customers, constantly learning flourish: from others and welcoming the challenge of • in industry and business; demanding customers to drive innovation and competitiveness. • in government; C3 They constantly introduce new and differentiated • within the knowledge base; products and services, through a deep knowledge of their competitors, encouraging innovation, and • within the finance community; focusing on core businesses, complemented by • amongst the public and the media; strategic alliances. • in education". C3 They win by exceeding their customers' expectations. These are the so-called '6 planks'. These findings can be summarized in five simple words:
1. Innovation in Industry and Business--Best Industrial Practice One of the problems which the IU has had to face is that innovation has not been a searchable topic in the directory of UK academic and business courses. This is symptomatic of the fact that there is no authoritative peer group mechanism which distils best practice in industry and academia. Some work is done in innovation management, but this is often based on
Change - E m p o w e r - Learn - Innovate - Win. Supporting the earlier work, nine out of ten of the companies which took part in the survey exhibited the characteristics identified in I n n o v a t i o n - - t h e Best Practice. The findings of the survey have been validated not only by those companies which participated originally, but also by the very many companies and organizations that have subsequently read the report and sought to adopt its findings.
Promoting Innovation in Industry, Government and Higher Education
Moreover, they underpin the strategic framework that the DTI is working to put in place with regard to the relevance and delivery of all its support mechanisms for UK industry. More detailed work has subsequently focused on the manufacturing sector. Using the same methodology as the Winning report, the 81 Training and Enterprise Councils (TECs) throughout England and Wales surveyed 561 companies. The results from this, written up in the Manufacturing Winners, 3 bore out the messages of the Winning report. However, significant gaps, particularly in areas such as leadership and competitor awareness, emerged between the 'best' and the rest. At the same time the findings of the report were supplemented with data drawn from the 'Best Factory Awards' and obtained from Cranfield School of Management, When combined with the more behavioural aspects of the survey they provide a powerful tool in demonstrating what can be achieved if the key messages of 'winning' and 'manufacturing winners' are adopted. The best performers are an order of magnitude better than the average in many criteria: speed of changeover, stock turns, quality rejects etc. The difference between the 'average' (and it is important to note that the average is of those factories which have put themselves forward for the award rather than the average of all UK factories) and the best 10% of the same self-selecting group is startling. The rate of new product introduction is up to 10 times higher in the best, their stock turn is often double the average and added value per manufacturing employee is also double. See Figure 1. To improve the wealth-creating capacity of UK industry requires a step-change in attitudes and per-
Process Sector benchmarks Average Top performance 25% reliability
/
Manufacturing added-T
/
72~
11
value per manufacturing employee (£000)
/
Total stockturns
/ 1__0 -__ - ~
I
/
7%
55%
1.3% 0.4% 90
140
I
/
11
2. Innovation and the Finance Community During the 1980s part of the dissatisfaction with Britain's relatively poor record in translating invention into innovation was focused on perceived problems in the relationship between the providers and consumers of capital. These included the difficulties faced by inventors looking to raise funds for scaleup, exacerbated by their unwillingness to take loans conditional on external advice on good business practice. For stable companies with sound financial backing a particular problem was that the high and fluctuating interest rates made it difficult to make the type of investment to improve future earning, schemes which could be easily justified in lower inflation countries. In recent years this problem has receded but such investments are still broadly lagging competitive companies, and can have a cumulative effect on competitiveness. For smaller companies, a particular problem has been the funding gap for amounts between £150,000
Process Sector benchmarks Top 10%
I 88% I 97.5% 99%
New product introductionl 2% I over last 5 years (new product/product range) I I scrap rate I 5.8% I
formance of the vast majority of companies. The research conducted by the IU shows what are the key ingredients of industrial best practice, and together with the Cranfield data, illustrates the results of embedding innovation into the company. The findings are now being incorporated into many of the IU's activities and underpin the National Benchmarking Service that the DTI wishes to launch through Business Links in 1996.
19
IC
apacity used for I changeOvers
Average Top performance 25% I 8% i 2% I I
Average component set-up time (min)
I 188 I
Average assembly set-up time (min)
~ ~ ~ - - -6- - I I
I I
15
Training on job (days) I-- - - --1 - - - - - • Existing employees I 4 I 5 • New employees I 21 I 30 [ Absenteeism
t
--J
Long Range Planning Vol. 29
Top 10% 1% 10
-2lO 42
-23-o/oI-1
August 1996
and £3 million, where the costs of due diligence on the part of the venture capitalist were simply too high in proportion to the expected return and, for quoted companies, the apparent demands of institutional investors for dividends at the expense of long-term investment for future growth. Envious glances were cast overseas, particularly towards Germany and Japan, which appeared to have a far more supportive approach towards industry and innovation. However, it must be recognized that financial systems are just as much the product of the unique history and culture of individual countries as industrial ones, and this makes it difficult to identify elements of global best practice in the financial world. Elements of any given system that are admired need to be seen in the context of the system in which they flourish. Attempts to transplant these elements wholesale into another system, however, usually end in failure because the cultural issues that gave rise to that practice are ignored. This is not to say, however, that no effort should be made to identify funding practices in other countries that appear to work well. Rather, that when attempting to introduce them to the UK's system due regard needs to be paid to the existing structures and the practices adapted accordingly. The provision of the correct type and amount of finance is a key element in the innovation process for both large and small companies. Arguably one of the reasons for the superior performance of companies in Japan and Germany is that they have a better record at accessing the right sort of finance. Traditionally in the UK small and medium sized companies have relied upon banks to provide overdraft facilities for virtually all of their financing needs, whether this is suitable or not. This has left companies overly vulnerable to interest rate fluctuations in times of economic downturn. Moreover, as on-demand facilities they are liable to be reduced or withdrawn by the banks as levels of bad debts mount in times of recession. Best practice suggests that companies, especially small ones, need to be much more alert to the requirement for the correct mix of finance, be it debt or equity, when considering their next stage of growth. One approach has been pioneered by the Innovation & Growth Unit of the National Westminster Bank. It has developed its 'wheel of investment' as a tool to assist companies in determining the correct financial package. It looks not only at the traditional banking products such as overdrafts and loans but also at the various grants available, and the need perhaps to access equity from external sources, be it a local 'business angel' or a venture capital fund. The mix is tailored to the specific requirements of the company and altered as the company grows and its needs change. Finance for start-up companies, especially hi-tech or bio-pharmaceutical, is fraught with risks that corn-
mercial banks are understandably reluctant to take. As noted above, the 'wheel of investment' is one response to this. In the US the Securities Act has recently been amended to allow banks to bundle-up non-government guaranteed loans to small businesses and through a securitization programme sell them into the wider investment market. This has two benefits: I. it enables the banks to lend to companies that w o u l d not normally meet their risk criteria and then lay this risk off in the market; 2. it frees up banks' capital to lend more money and thereby support more growing businesses. Suitably modified there is no reason w h y such a programme could not work in the UK. Unfavourable comparisons are frequently drawn between London and Frankfurt or Tokyo when it comes to the provision of long-term finance for industry to fund long-term investments and R&D. The City's appetite for dividends, compared with our international competitors, is frequently alleged to be one of the main causes for the decline of the UK's engineering and physics based industries. Research has shown these criticisms to be largely unfounded. Comparisons with Germany and Japan frequently fail to take into account the different financial and ownership structures, where shareholders' legitimate concerns and returns to them come very low in the order of corporate priorities. Pension funds in the UK are at least as long-term as their international counter-parts, on average holding shares for over 8 years. But the perceptions matter in that they do influence the behaviour of management within those companies. The establishment of models of best practice for companies and their institutional investors in the report Developing a Winning Partnership 4 sets out how companies and investors should manage their relationship. The emphasis is on full and open dialogue on both sides, with the companies setting out their longterm plans for growth and the institutions explaining their reasons for investing and their expectations of returns in the light of the companies' strategy. Through such measures companies can confidently invest in innovation, knowing they do so with the backing of their owners.
3. Innovation and the A c a d e m i c Industrial Interface Of the wide role of the universities in society, only their role in wealth creation is considered is this article. In this respect 'best global practice' may be represented by the small group of American universities, such as Stamford and Massachusetts Institute of Technology (MIT), which consciously play a role in wealth creation for the state and the nation. An estimate by University of Manchester Institute of Science & Technology (UMIST) Ventures, which is itself
Promoting Innovation in Industry, Government and Higher Education
seeking to emulate the approach of MIT, illustrates the major contribution of MIT to US industry: O O O O Cl
US$2.4billion net worth 100 licences per year 20 companies founded per year 600 companies founded overall Annual sales (1992)--$45 billion from businesses created by alumni or with MIT technology O Employment--300,000 jobs O Trend--number of new companies doubling each 10 years
In this sense no British university would claim to be within orders of magnitude of this achievement; yet the quality of UK academic thinking and the size of UK university clusters of appropriate quality is not dissimilar. In a recent innovation seminar at Swansea, Professor Gray of MIT offered an explanation of the difference. "The Charter of MIT has been directed to wealth creation for the State of Massachusetts--British Universities have a prime focus on creation of fundamental knowledge and the training of students for high quality academic performance."
In the last few years there has been a major change in relationships with British academia in which government policy has been instrumental, the White Paper Realising our Potential, the subsequent reorganization of the funding councils and the launch of the "Foresight" exercise all playing helpful roles. A dilution of the academic excellence of the universities would be disastrous, but improvement is needed in the leveraging of knowledge from academia to business, particularly small business. A range of recent initiatives has been designed to improve the linkage between those producing educated, trained and skilled people and generating fundamental knowledge, and those employing these people and seeking to exploit the knowledge. With the diversity of characteristics of the universities, and the sectors and industries they serve, a range of best practice models is the most desirable outcome. The role of universities is defined in a report to Yorkshire and Humberside Vice Chancellors (1995) by: Cl Educate students to standard of excellence in their chosen profession. Cl Prepare graduates for research skills to world class standards. ~3 Add to the stock of fundamental understanding. ~3 Act responsibly as a major regional employer. Some universities are ideally suited for this focused role. For others, a wider role is desirable from the additional 'menu' presented to the Conference of Vice Chancellors (1995): ~i Play a national and regional role in providing the advanced skills base for industrial development.
O Enable graduates to acquire an applied skills base to 'hit the ground running' in smaller industrial enterprises 0 Leverage knowledge base to provide an engine for wealth creation on the scale of MIT. O Be at the forefront in satisfying the evolving need for 'lifelong learning'. O Help create the interface to all British industry, not just the academically literate part. Most universities, sometimes guided by requirements for funding, have improved their liaison with industry via joint programmes, teaching company schemes, sandwich course projects; but there are major weaknesses for which new structures or networks are needed. There are approximately 3million companies in Britain of which only a small proportion have a graduate R &D resource (see Table 1). Most university liaison is with the 3% of larger companies which are 'academically literate'--yet it is a national priority to leverage knowledge from academic and world-class companies to raise the standard of a much larger group of companies and sectors. In the last few years there have been excellent initiatives to widen the scope of interaction. The Teaching Company Scheme, which has arranged 2000 industry-academic partnerships since its inception in 1975, has steadily expanded and is now focused on developing links with smaller and medium sized companies with less than 200 employees. The university industrial liaison officers have formed a single association (AURIL) to focus attention on best practice. The new universities often have very close links with industry. Many of the old established universities are building up links via 'industry clubs', science park links and student placement. The Vice Chancellors Group would like industry to give priority to creating more opportunity for good projects in industry which would enable a much wider use of sandwich course schemes. One major new initiative has been "Foresight". Academics, industrialists and experts from service, public and private organizations have worked together in 15 sectors covering a substantial majority of the wealth generating base of British society. Over 10,000 people have participated extensively to produce sector reports forecasting predictable development over the next 15 years in areas ranging from likely scientific capability advances to the potential implications within society. A "Dephi" exercise has been used to check that the initial conclusions within sectors properly accounted for rapid developments in other areas. While "Foresight" was designed to assist the focus of academic resource towards areas of maximum relevance, there are already short-term spin-off benefits. The level of collaboration between academia and industry has increased, the dissemination process is involving a widening range of Long Range Planning Vol. 29
August 1996
Management structure
Cos (%)
Employees (%)
Wealth creation (%)
1-20 20-50
Individual 2-3 managers--consensus
78 11
13 12
11 17
Team led Companies
50-150
8
25
24
Resourced
150-500
Management, functional, direction, finance, production, sales, marketing, human resource As above with R & D, design and training established
2
20
25
Large Corporations Multi-nationals
500-2000 2000+
1
29
24
Classification
Small Small firm Managed firm
No. of employees
Medium
Full in-house resource
small companies and members of the academic community, and there is spontaneous pressure for the initiative to continue and extend. Overall though, while there is substantial improvement in relations between academia and industry, there is still much to be done to widen the penetration of the UK knowledge base into the small and medium size enterprises (SME) sector of companies in the UK. Apart from the training role, university liaison tends to concentrate on technology transfer, yet wealth creation requires innovation and successful commercialization, and most failures in moving from an idea to successful exploitation occur due to lack of understanding and attention paid to the other aspects of the business mix; not to unsuccessful transfer of technology.
4. Innovation Project Management Steering through the stages of an inventive idea to success in the market place needs high quality innovation project management, and yet this vital applied discipline is hardly recognized and not taught outside individual companies and a few industrial-academic partnerships in the UK. To turn ideas into successful marketplace outcomes is a difficult task which requires an ever evolving expertise base managed by top-class people devoted to identifying, consolidating and promulgating best practice. The cadre of expertise which is built up by having expertise centres focused on industrial outcome rather than academic publication as the prime measurable success was one justification for the original "Faraday Centre" proposals--and is a benefit of appropriate institutions in Continental and North American countries. 'Bricks and mortar' Faraday Centres were rejected at this stage of UK industrial and academic devel-
opment, but there has been encouragement for projects which embrace Faraday principles. The key Faraday principles are: F3 The two-way flow of industrial technology and skilled people between the science and engineering base and industry. CI Partnership between the industrial research organizations and the science and engineering base. (3 Core research underpinning product and process development. (3 Industrially relevant post-graduate training. There have recently been noteworthy experiments to build academic-industrial liaison based on Faraday principles, e.g. post-graduate training partnership (PTP) schemes, and the scope of the schemes has recently been extended. One version which also captures training on innovation project management and leveraging knowledge to small companies is Faraday North West which has the following features: Cl The overall project reports to the North West business leadership team with a board consisting of the CEOs of many of the regions leading industrialists--hence industrial relevance. E3 The structure is based on 'link' type master projects between a competent company and a univ e r s i t y - b u t with the PhD student leading the project trained in innovation project management skills. Cl A cluster of small companies who can benefit from access to the equipment and knowledge base of the project but not the 'proprietary knowledge' outcome are given access to the project, and the coordinator has a responsibility to help solve their immediate problems via 'clinics' networking and visits.
Promoting Innovation in Industry, Government and Higher Education
Q The network of project managers under the guidance of the Faraday Director can exchange experience and begin to build a body of best practice supply expertise which is so lacking in the current UK system. Hence the goals of leveraging high quality 'commodity knowledge' to a much wider group of UK industries--developing practical experience in innovation project management and locating the overall administration within a highly commercially oriented structure--are all addressed.
5. The Role of Universities in 'Lifelong Learning' The 'half-life' of useful technical knowledge is shrinking, and new strategies for management and staff to stay up to date for life are required. 'Lifelong learning' and 'continuous professional development' concepts seek to meet these needs, and universities recognize that the characteristics of their 'student' are changing. Short courses to enable graduates to 'top up', holistic approaches to industrial training, distance learning in which the Open University with the BBC hold a world leadership role and flexible short course study leading to post-graduate degrees or portable qualifications are part of a battery of approaches designed to meet these customer requirements. Here best practice is represented by universities working with individual customers or representative groups to tailor-make courses to meet customer needs. Warwick University has been a leader in this area, the new universities are also well positioned; the "TEAM" programme involves 15 universities collaborating to offer short courses in 60 subject areas, leading in realistic industrial training timescales to MBA or MSc qualifications based on 10-12 short courses with one longer project. In Trafford Park Manchester, the five universities, the TEC and six major
companies lead a consortium, "The Trafford Park Manufacturing Institute (TPMI)" to pool training resource and offer to any interested company tailor~ made training for a wide range of manufacturing based training skills--from 'shop floor' behavioural approaches through to post-doctoral projects. A manufacturing diploma accredited by the universities and targeted at experienced manufacturing staff lacking overview on modern technology has been the product in greatest demand at TPMI. Many universities have integrated graduate development schemes to offer ongoing development to graduates already in work. The engineering professional associations have been particularly proactive in encouraging graduate engineers and technicians to be involved in continuous professional development. The rapid improvement in IT and multimedia based learning strategies make the whole area of top-up training a rapidly changing scene.
6. The Virtuous Triangle of Development An overall problem remaining for Britain to fully exploit its expertise base, however, is in the close linkages needed to develop an applied area which would require a close interactive relationship between industry, academia and business schools (see Figure 2). Such a prestigious peer group review m e d i u m does not exist. However, there are promising signs. Among a number of positive research council initiatives, the ESRC has just developed a framework for innovation training in collaboration with six leading business schools, and the innovation programme of research for ESRC has a joint academic-industrial steering group to advise on programme selection.
Long Range Planning Vol. 29
August 1996
7. Innovation and the EducationIndustry Interface Within the overall education process, it is important for the young citizen to have an appreciation of the role of wealth creation in contributing to and enhancing overall quality of life. In an external world which is increasingly technological, there seems room for improvement in presenting the issue within the UK education scene: [::1 Far fewer children have aspirations to enter industry than in, say, Germany. [3 A declining proportion, particularly of the most talented, opt for science or technology courses at 'A' level, so that university departments cannot fill their available places without relaxing entry requirements. O The engineering profession in particular feels that the relatively poor public perception of the importance of high quality engineers adversely affects recruitment. Within industry, the 'two nations' culture has contributed to a situation in which technological issues are regarded as 'specialist' in many companies, hence not within the scope of general management attention. Industry recognizes that it must play a role in re-establishing a positive perception: many initiatives have been taken to provide material to make the topics interesting and appealing. The Engineering Council has been particularly proactive with many initiatives involving engineers working with schools on projects of real commercial value: "Action for Engineering" is a programme with major initiatives in the education area: [3 To develop more interest among school leavers, parents and teachers in the merits of engineering as a rewarding career; stronger industrial links as part of the curriculum and better publicized rewards are part of the proposed mechanisms. O Improve student performance in key topics, particularly maths. O Better training and continuous development for professional engineers and technicians. O Encouragement to industry to broaden careers for engineers at an earlier stage. The Chemical Industry Association has a major outreach programme under the banner "Responsible Care' '--and requires any member to achieve stringent standards and publicize them via site visits, open days etc. As a programme more directly focused on children, it has worked with Halton Borough and major local companies to provide a m u s e u m of the chemical industry 'catalyst' where the impact on society of the chemical industry from the early days of development to modern times are illustrated. The
museum, itself an historical chemical industry building, is located within sight of many of the pioneering chemical companies of the 19th century. Parties of school children undertake educational projects at the museum, and 17,000 were involved in 1994-1995. ~3 SATIS--an arm of the 22,000 strong association of science teachers--produces material to supplement the National Curriculum for children of all ages. The material is generated by leading industrialists and academics and translated into 'childspeak' by experienced child communicators. This material is sold in loose leaf binders and schools purchasing one set can duplicate freely without infringing copyright. O Major companies and trusts and professional bodies set education's liaison as a key priority for external affairs. O The SET week sponsored by the Office of Science and Technology acts as a focal point for many events and considerable positive media attention. Videos and films sponsored by government departments are shown on Open University channels for use by teachers. A natural tendency of companies perceiving a poor public perception of their value among the young is to commission 'wonderful material' to inform children of their worth. However, there is, in general, a bewildering Aladdin's cave of such material available--and best practice resides in initiatives which help teachers select and deliver such material, recognizing that the demands of the National Curriculum on their own and their classes' time means they must be very discriminating. There is a debate within education on the merits of the relative degree of specialism required in 'arts' or 'science' subjects in England compared with France, Scotland or Germany. For example, The Salters Institute which co-ordinates many groups involved in education liaison, under the chairmanship of the distinguished scientist Lord Porter, recently called for changes to broaden the width of subjects required for sixth-form training. One particular issue in the UK is provision of people qualified in practical as opposed to academic topics. A recent CEST report concluded that British and German educational output were similar in many respects with this one exception: there is no equivalent in Britain to the qualification of the "Meisterwerker" in Germany; and this highly practical expert at or just below graduate level is a key requirement in many industrial and academic roles. The NVQ and GNVQ initiatives in the UK may address this issue in the long term. While Business Schools are growing in terms of the number of MBA students and in the variety of courses offered, relatively few have addressed the issue of innovation in depth, and there is little interaction
Promoting Innovation in Industry, Government and Higher Education
between the management schools and manufacturing and engineering faculties. American experience indicates that management, technological and entrepreneurial skills are all required in close partnership to maximize the value of successful n e w ideas. New initiatives are underway in this area, as noted at the end of Innovation and the Academic-Industrial Interface (Section 3).
8. Innovation and Public Understanding, Including the Role of the Media The importance of innovation--which requires embracing a culture of constant chance--is not well understood within a society traditionally insulated from the rapid pace of development in the more geographically remote competitor nations. Resistance to change has indeed been practical policy within many parts of society, even those involved in training the generation which must cope with and thrive within the n e w paradigm. The media plays a key role in forming an understanding of the necessity of change. In the last decade the importance of innovation has increasingly been appreciated by the professional business and society based media. The IU tracks citing of innovation; this has increased dramatically since first measurements in 1991, and the tone of the contributing features have been far more positive. To command media attention often requires a 'hook' for a story, and there are now well established 'set piece' innovation events: o The Annual UK Innovation Lecture by a worldclass innovator is now broadcast on satellite TV to invited audiences nationwide. In 1996 an audience of over 3000 senior businessmen, academics, public sector and media staff etc. viewed the lecture delivered simultaneously in 29 locations. O The R&D Scoreboard--widely analysed in the major business oriented newspapers--focuses attention on which companies and sectors are investing for future innovation. This has an importance beyond the issue of R & D as it is the only quantitative indication in the public domain of the preparedness to allocate resources for the generation of future profit streams, as well as delivering short-term results. In some sectors this has been reported to have had a positive effect on the quality of discussion between management and institutional investors. cl The Innovation Writers Awards promotes the realization that competent journalism can be highly effective in translating 'inventions' to innovations. Cl At a regional level there are many innovation
awards which raise the awareness of innovation amongst small companies. Some of these are sponsored by major companies which sends a useful message to their employees, their supply chain and their customers. [3 At governmental level the commitment to innow~tion is signalled in Government White Papers, notably the 1st and 2nd Competitiveness White Papers, the "Realising our Potential" and "Foresight" initiatives. These publications are followed by resource allocations and initiatives by many parts of the civil service and governmental offices, the TECs and the Business Link structure. The extensive round of speeches by ministers, programmes such as "Managing in the 90s", the talks and presentations by IU industrialists and the media articles and programmes triggered by these initiatives all contribute to raising industrial and public awareness. Paradoxically, establishing Science & Technology or even industry itself as a backcloth to normal life as portrayed within the broadcast media has been less successful: the architypical scientist is small, balding, with unruly hair and an Austrian accent--Einstein has a lot to answer for! Industry is hardly visualized except as a polluter or corrupt manipulator as a backdrop to the world of soaps and situation dramas portraying normal life. Portraying the wealth creating arm of society in a realistic way seems an important goal in achieving more favourable attributes in society. In countries with other cultures, the status of technologists and industrialists is higher, e.g. in Holland and Germany; but the adverse perceptions of the contribution of industry appear also stronger, e.g. in environmental areas.
9. Innovation and Government/ Civil Service In extolling the rest of society to embrace a culture of constant change and improvement, it is axiomatic that government departments should practice what they preach. There are many real differences between the mission and purpose of roles in the civil service and the public sector in general compared with industry; there are, however, many areas of overlap where identified 'best industrial practice' is equally relevant to public sector practice. The intermingling of people from industry and the public sector happens increasingly, to mutual benefit. Of all areas, it is most appropriate that this process is well advanced in the DTI, which is trying to define and stimulate adoption of industrial best practice and should therefore be at the forefront of exploring and encouraging adoption in Long Range Planning Vol. 29
August 1996
the public sector. An increasing number of industrialists on secondment have been brought in and are playing a role in changing culture and translating best industrial practice into civil service approaches. Departments have applied for the "Investors in People" award. The best practice distilled from the Winning report are used to encourage self-monitoring of departmental performance: international benchmarks among the analogue organizations to, for example, the DTI in other countries are encouraged. The establishment of the new Government OfficeTraining & Enterprise Council-Business Link structure now provides a m u c h more customer orientated 'route to market' for government initiatives to reach the smaller and m e d i u m sized companies; and their views are more effectively translated, distilled and fed back to government. Again, the lessons from the Winning report are being used to help improve the effectiveness and efficiency of this process, including the design, marketing and delivery of initiatives and the relationships between the various partner organizations. Within the widespread activity in the DTI, the role of the IU is to use the strong relationships with companies, other organizations and regions, to help define, codify and prioritize best practice. The mission is "To work towards the achievement of an innovative public sector that encourages and exploits ideas for continuous improvement and that develops and maintains effective customer focus." A most important role is to focus on the few issues which industry, particularly SMEs, identify as of most importance. Then the IU helps with research to quantify and validate approaches, it works with other parts of the DTI and other departments to produce best practice procedures, helps validation, e.g. through Business Links and uses the 'multipliers' via contributions to White Papers, ministerial speeches, presentations to industrial and other audiences by IU members, videos, tapes and contact with media to help promulgate the message. The major work of dissemination is done through other parts of the DTI and other departments and thus good working relationships, mutual respect and influence are key requirements. The IU itself must be an exemplary organization practising the methods and cultures it promotes. The industrialists play a role in importing latest 'best practice' expertise, but the officials have a more crucial
role to play in helping to translate these approaches into relevant approaches for public sector organizations. To this end the IU is working with the Citizens Charter Unit and contributes to the Civil Service College. Key priorities at present include promoting the culture captured by the Winning report: t3 Change--Empower--Learn--Innovate--Win. ~3 Supporting the focus on simplification and customer targeted dissemination of practices which have proved most effective in helping successful growth of companies, particularly smaller companies. r3 Supporting the widespread movement in the DTI towards better people and management practices, including Investors in People. For industrialists, rules and procedures deriving from concepts of'public accountability' and 'additionality' are one of the major differences compared with private sector experience, but on all sides there is a will to overcome barriers and 'move with the times'.
10. Commentary Innovation is firmly on the agenda in the UK. Compared with the time of m y first exposure to the issue at a national level as a member of the Government Advisory Committee (the Innovation Advisory Board 1988--1991), the situation has now changed remarkably. Academic attitudes are far more supportive with m u c h more buy-in to the wealth creation agenda and the regional importance and responsibilities of universities. The city-industry relations have improved, the GO-TEC-Business Link system provides a 'route to market' for a two-way dialogue for small companies and public and media attention is m u c h higher. However, as the current EC Green Paper on innovation points out, the speed of progress in Asia and America means that competitively Europe, including the UK, has to run even harder to do better than stand still. By fully realizing our potential we can survive and thrive. A chapter entitled "Innovation and TechnologyForesight" which is, in part, based on this material appears in StrategicManagement of Science &Technoloy, Prentice Hall, EnglewoodCliffs,NJ (1996). All reports cited in this article are available from The Innovation Unit, Department of Trade & Industry, 151 Buckingham Palace Road, London SWlW 9SS, UK.
Promoting Innovation in Industry, Government and Higher Education
References 1. Innovation--the Best Practice, Joint study by the Technology Group of CBI and the Innovation Unit of DTI.
2. How the Best UK Companies are WINNING, Joint CBI/DTI study. 3. Manufacturing Winners, TEC National Council. 4. Developing a Winning Partnership, Joint City-Industry Working Group under the Chairmanship of Paul Myners of Gartmore plc.
Long Range Planning Vol. 29
August 1996