Mike King, an economist based at the National Physical Laboratory (one the UK’s leading PSREs), who has also worked for BIS, gives his view on the recent BIS report: Estimating the effect of UK direct public support for innovation.
The positive impact of innovation on commercial success has long been recognised. Maintaining close ties with the research base helps businesses stay ahead of curve by exploiting the latest technological advances and getting scientific developments to the end user more quickly.
UK investment in R&D is fairly low when compared to similar countries but must contend with questions of how to best spend money from the public coffers. The question in this case is whether the money invested in public support for innovation is reaping the benefits desired, and creating new commercial success?
A recent report from the Department for Business, Innovation and Skills, on ‘estimating the effect of UK direct public support for innovation’ sought to find out just that. The report, perhaps unsurprisingly, found that firms benefit significantly from active engagement with universities or Public Sector Research Establishments (PSREs). Businesses that cooperate with universities or PSREs are 70% more likely to generate revenue from the sale of new products relative to a control group composed of firms with the same characteristics and history but who failed to make use of such institutions.
Similarly, R&D intensity (R&D as a fraction of turnover) increased by 160% The National Physical Laboratory (NPL) is the UK‘s National Measurement Institute and one of the UK’s leading Public Sector Research Establishments (PSREs), and therefore serves as a good example of what public sector collaboration can offer for companies. A recent customer survey found that companies that working closely with NPL receive direct financial benefits worth £634M a year, with 63% of collaborators having introduced a new product or developing an existing one during the period of the collaboration. Over the next few years NPL is committed to increasing this to deliver £1 billion a year of financial benefit to organisations.
The most significant impacts for companies of working with NPL came through tangible products to companies, such as training, following which 92 % of organisations saw improvements in their organisations. Technical services too, provide value. As part of its Product Verification Programme, for example, NPL works with companies to optimise their processes. Product verification services account for between 10% and 20% of the cost of finished products so improving these activities can have a significant impact on production and revenues. In one instance, NPL saved a UK business a potential £500,000 risk by using a thermal imaging method called 'pulsed thermography' to reveal invisible problems with its turbine blade coatings and prevent a failure shutting down their power station.
Like many PSREs, NPL also contributes innovations at an early stage, teaming up with companies to conduct cutting edge research and help get innovative productsto market more quickly andaids sales and marketing and help build customer confidence in products, by providing third party validation. As well as improving revenue through their own products and services, the BIS report found that companies that collaborate with research institutes were more likely to secure funding through public sector grants. 45% of grant-holders also collaborated with the public sector, whilst 32% of firms that collaborated with universities and government agencies were also grant-holders. Grants support the broader development of firms’ absorptive capacity (the ability to innovate as captured in the skills, networks and experience of its people).
Companies receiving public sector grants substantially increased UK firms’ innovation performance, in a number of categories. Collaboration and public sector support made thesegroups more likely to invest more in R&D (122%), employ high-level STEM graduates (29%) and introduce novel products to market (41%). Receiving a public sector grant doubles a company’s spending on innovation. Some would argue that this would mean the company itself relies on this funding and doesn’t funding innovation itself. i.e. that public funding ‘crowds-out’ private funding.
However, the report found that the opposite was true, with public funding crowding-in around 30% more private funding (in addition to the public funding provided) across three years. There is of course more work to be done to assess all of the impacts, of collaboration over the long-term.
However, all evidence points towards the fact that public support and grants have a positive impact on UK innovation and subsequent economic growth. Companies who forge ties with universities and public sector research establishments, like NPL, can gain significantly from these partnerships, both financially and otherwise, giving them the edge over the competition.  The focus of this study was to look at the effects of public support for innovation. The estimates of the size of these effects have significant uncertainty e.g. R&D intensity (R&D as a fraction of turnover) increased by 160% ± 30%.