WHY IT MATTERS
We may not be able to predict the future, but we do know that we face an ever increasing pace of change. Adapting to changes requires regular innovation to build resilience and enable our economy to thrive.
According to the OECD “Much of the rise in living standards is due to innovation – this has been the case since the Industrial Revolution. Today, innovative performance is a crucial factor in determining competitiveness and national progress. Moreover, innovation is important to help address global challenges, such as climate change and sustainable development.”
Today, because of environmental pressures, we face a new innovation challenge: how to maintain quality of life while reversing environmental damage.
There are many types of innovation:
- Product innovation: creating a product or service that did not exist before, such as the hybrid car engine
- Process innovation: changing the way existing products and services are made or delivered, for instance, online shopping
- Business model innovation: changing the way a company makes money. For instance, when Apple introduced iTunes it changed its business model from a hardware and software producer to a digital download provider
- Governance innovation: addressing the core institutions and frameworks that govern how major decisions are made, for example through devolved governments in Ireland, Scotland and Wales
WHAT SUCCESS LOOKS LIKE
Innovation is often related to R&D spend but it is more complex than that. A couple of international indices give us a strong indication of key success criteria:
The Global Innovation Index, a study from Insead Business School, Cornell University and the World Intellectual Property Organization, measures how innovative countries are by evaluating five input measures that support future innovation, and two output measures that assess the extent of innovation achieved. These are broken down into further subcomponents as shown below.
In the 2013 Innovation Index, the UK ranked third out of 142 nations, but worryingly ranked 60th in innovation efficiency, an indicator of future success. The UK’s efficiency ranking shows that we get less out of our innovative capability than Nigeria, India, China and Germany.
The EU’s Innovation Union Scoreboard assesses strengths and weaknesses of research and innovation systems for EU Member States. The UK is described as an “Innovation follower” ranking close to that of the EU average, but lagging behind Germany, the Netherlands and Scandinavia.
WHAT IS IN IT FOR THE UK ECONOMY?
In 1950 there were 412,000 patent applications worldwide; in 2011 there were 1.9 mn. The 21st century is likely to see more innovation than the previous 500 years.
UK growth and competitiveness will improve in line with our ability to exploit innovation. For instance, Green Alliance estimates that cleantech innovation could save the UK up to £160 bn in energy supply costs by 2050 and increase GDP for UK based businesses by up to £89 bn.
WHAT ABOUT BUSINESS?
Innovation can deliver two main benefits for business:
Competitive advantage: Sustainability is a key driver of innovation and profitability. Of particular interest to business are innovations that address global megatrends – digital revolution, urbanisation, resource scarcity, climate change and demographic change, including:
- Energy efficiency
- Circular economy
- Bottom of the pyramid markets
- Product to service revenue models
Build resilience: Building resilience at both the company and country level is critical, and in many cases, resilience starts with innovation.
How can businesses deliver innovation in an economy that works?
While incremental innovation is useful, the real breakthroughs come from ‘disruptive’ innovation that drives step changes. To achieve this we need to:
- Look beyond product innovation and aim to innovate equally in processes and business models. This is where genuine change and competitive advantage lie
- Embed innovation within business culture by creating an environment for experimentation and co-creation that supports disruptive innovation
- Increase collaboration between businesses along the value chain and between business, universities and third sector organisations
WHAT POLICY INTERVENTIONS CAN HELP ACHIEVE THIS?
Firstly, input factors need to be developed by:
- Strengthening financial and fiscal incentives that promote R&D
- Addressing innovation barriers including international trade barriers and anti-competitive regulation
- Promoting international R&D collaboration
- Supporting long-term economic and policy stability to encourage investment
- Supporting social entrepreneurs and innovators
- Strengthening the Technology Strategy Board to encourage partnerships
- Encouraging innovation and knowledge creation in secondary and further education
However, input factors are rarely enough. The demand side needs to be nurtured as well, and the public sector has a critical role to play here:
- Procurement decisions should prioritise innovations that offer full-lifecycle solutions rather than focusing on upfront cost
- Progressive regulation sends a signal to the market and can be a powerful driver of innovation
Global Innovation Index components
Source: Please download or view our Report online for a full list
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