SUMMARY OF RECOMMENDATIONS AND CONCLUSIONS
(a) Successful
innovation does not depend on a uniform process or a set approach;
it is inherently dynamic and evolutionary. The success of Government
policies designed to foster innovation in industry is dependent
on a clear understanding of these issues. We commend efforts to
further the understanding of innovation and recommend that they
continue to attract Government support (paragraph 10).
(b) There is a
failure in the UK to appreciate what at Massachusetts Institute
of Technology is termed the "dignity of applied knowledge"
(paragraph 12).
(c) Not a single
witness disputed the maxim that for engineering and physical sciences
based industries innovation required a greater focus on the application
and development of scientific advances than in the biosciences
and that this was the root of the differences between the two
in terms of innovatory performance and approach (paragraph 13).
(d) Since 1993
the UK has seen a greater drop in expenditure on R&D as a
percentage of gross domestic product than any other G7 nation
as growth in gross domestic product has outpaced R&D investment.
(Paragraph 17).
(e) We, in common
with the majority of our witnesses, conclude that the UK's relatively
poor record in innovation in engineering and the physical sciences
is not the result of a weakness in the science base. There is
plenty of good research being produced in the UK and there are
more innovative ideas than are taken up and commercialised by
industry. The UK is strong in terms of scientific production but
weaker in terms of its application and exploitation (paragraph
22).
(f) We recommend
that the Government assumes a greater rôle in supporting
development and technology demonstration where the risks are high
but the rewards good if the project is successful. We recommend
that the Government supports the development of large scale demonstration
facilities to allow UK companies better means of carrying out
proof of concept research (paragraph 33).
(g) We recommend
that the Government scrutinises closely management and marketing
strengths in companies seeking investment grants (such as SMART)
and, where necessary, consider providing additional support (paragraph
34).
(h) We welcome
the Secretary of State's recognition both of the importance of
larger corporations in creating an economy characterised by innovation
and of the rôle of Government in stimulating them to innovate
(paragraph 41).
(i) For scientific
and technological advances to be successfully exploited, each
one of the components of innovation — research, development,
market investigation, manufacturing and commercial launch and
the entrepreneurial spirit to bring them together — must
be present. The UK's comparatively poor record in innovation in
engineering and physical sciences based industries is not the
result of weakness in the research base. The failure results from
poor translation of research ideas into viable products —
weaknesses closer to the market where industry has primary responsibility
such as in development, demonstration of a product integrating
various technologies, marketing and launch (paragraph 42).
(j) We recommend
that the Government seeks harmonisation of trading patterns and
systems across the European Union and gives support to a primary
market for growth and technology-based companies (paragraph 49).
(k) We recommend
that the Enterprise Fund should do more than provide capital;
it should be prepared to support enterprises with functions such
as recruiting, management and business development . We shall
monitor the implementation and development of this scheme to assess
its effectiveness (paragraph 55).
(l) If the funds
invested generate adequate returns, University Challenge will
demonstrate to the venture capital community the benefits of investing
in technology-based companies and thus draw in further investment.
This should be one of its long-term objectives however, the success
of the initiative should be measured by the number of new science
and technology- based ventures established by universities as
a result of the fund (paragraph 56).
(m) We recommend
that the Business Link network should be charged with assisting
small technology-based firms in preparing for venture capital
investment (paragraph 57).
(n) We recommend
that the Regional Development Agencies should assume responsibility
for working with local and regional business angel networks and
business introduction agencies (paragraph 58).
(o) We welcome
the introduction of R&D tax credits to support small companies.
It will not, however, affect the behaviour of larger companies
whose commitment to innovation is just as important. We recommend
that the Government should look again at extending this type of
tax credit to large companies (paragraph 60).
(p) It is important
that any system of fiscal incentives is stable from year to year;
is focussed on the cost of development, market research, demonstrators
and product launch, and that its value is monitored in the long
term (paragraph 61).
(q) We welcome
the changes in the 1998 and 1999 budgets which some witnesses
argued would substantially alter the operation of Capital Gains
Tax in the favour of entrepreneurs and management teams. We recommend
that the Government monitors closely the impact of these changes
to ensure their effectiveness in facilitating innovation. It should
also monitor closely approaches to taxation and Capital Gains
Tax in other member countries of the European Union (paragraph
62).
(r) We welcome
the Institutes for Enterprise; they are a step in the right direction
and we look forward to them playing a more significant rôle
in the future (paragraph 63).
(s) We recommend
that changes in the reward structure for serial entrepreneurs
be coupled with widespread publicity regarding successful rôle
models and active Government support in marrying together entrepreneurs
with the right technology and access to finance (paragraph 64).
(t) We welcome
the Secretary of State's undertaking to review the legislation
on bankruptcy and insolvency to introduce a distinction between
responsible entrepreneurs whose businesses have failed and those
whose reckless activities have resulted in business failure (paragraph
65).
(u) The 1998 Competitiveness
White Paper stated that it is not for Government to determine
how companies are managed nor to anticipate boardroom decisions.
We agree. Government should, however, encourage firms to adopt
a long-term approach to market and technological opportunities
by spreading best practice in innovation management and drawing
attention to the financial and commercial benefits which can derive
from technological innovation. Likewise business schools should
ensure that the management of science-based innovation is properly
covered in their curricula (paragraph 67).
(v) Universities
must protect their intellectual property appropriately. Methods
of protection will, however, vary depending on a range of factors
including the nature of the invention. Consideration of intellectual
property rights and patenting should not be allowed to act as
impediments to the flow of knowledge and expertise which is the
fuel for innovation (paragraph 72).
(w) The Government
placed strong emphasis on addressing weaknesses in the EU and
UK patent systems in Our Competitive Future. Its 'IPR Action
Plan' includes working towards an EU patenting system which is
both affordable and easily enforceable. We welcome these commitments
but note that the German Government said that it favoured a move
to the US system. These European and international differences
need to be reconciled (paragraph 73).
(x) Government
policy should be focussed upon achieving two equally important
goals. First, Government must ensure that there is a strong public
sector research and education base, at all levels, to provide
industry with leading-edge research and the highly trained staff
"which is the life-blood of technology-based industry".
Second, Government must provide an economic and fiscal environment
that supports those who innovate, and encourages others to improve
their innovative performance (paragraph 74).
(y) The greatest
contribution that Government can make to industrial innovation
is by providing a stable economy over the long term which is conducive
to innovation, informed risk-taking and change (paragraph 76).
(z) We recommend
that Government funding for the Teaching Company Scheme should
continue to increase gradually up to the time when the level of
return starts to fall significantly (paragraph 79).
(aa) We acknowledge
LINK's effectiveness in strengthening long-term links between
industry and the science base but recommend that steps are taken
to reduce the bureaucracy of the scheme and to make it more accessible
(paragraph 80).
(bb) If LINK is
to reach its maximum potential, it must be effectively marketed
and easily accessible not only to those companies which are already
aware of the benefits of collaboration with the research base
but more importantly also to those which have no experience of
interaction with academia (paragraph 81).
(cc) We welcome
the Department of Trade and Industry's commitment to the Faraday
concept as a means of transferring technology and instituting
market orientated development and its announcement of additional
funding (paragraph 82).
(dd) We have previously
called for greater clarification in existing schemes designed
to promote interaction between industry and the research base
and recommended that consideration be given to the greater use
of the successful LINK scheme as an umbrella to reduce confusion.
We do so again (paragraph 83).
(ee) There is no
intrinsic reason why greater interaction with industry should
compromise the ability of the research base to meet its own goals.
It is, nevertheless, critical that Government policy, in seeking
to increase the industrial relevance and take up of the research
it performs, should not overlook the science base's diverse rôles.
We are adamant that the primary measure of quality in the science,
engineering and technology base should be scientific excellence
rather than the potential for commercial exploitation (paragraph
84).
(ff) The public
interest clearly lies in the easiest possible exchange of knowledge
between academics and industry. Funding mechanisms such as the
Research Assessment Exercise must encourage universities to exploit
their intellectual property and foster a collaborative culture
in the university sector (paragraph 85).
(gg) HEROBIC is,
in terms of its funding, too limited to be effective. The creation
of HEROBIC, although a welcome sign of intent, will not be able
to affect the culture change that both we and the Higher Education
Funding Council for England are seeking if the research assessment
exercise itself continues to undervalue research undertaken in
collaboration with industry or research of industrial relevance
(paragraph 86).
(hh) The conflict
of opinion between the Chief Scientific Adviser and industrialists
over the availability and suitability of science, engineering
and technology graduates needs to be reconciled (paragraph 88).
(ii) The Government
must recognise the need to increase the quality and levels of
competence of science, engineering and technology graduates. The
onus must then be on industry to seek ways of attracting the highest
quality UK graduates in sufficient number into industrial careers
(paragraph 89).
(jj) The Government
should ensure that Regional Development Agencies, in partnership
with Local Authorities, are adequately resourced to provide the
infrastructure for economic development and the establishment
of clusters around local universities (paragraph 90).
(kk) We welcome
the Government's recognition of the importance of clusters and
the changes that have been made to the planning system to promote
their development (paragraph 93).
(ll) We recommend
that one of the objectives of the Ministerial Group should be
to understand better the ways in which technology clusters promote
innovation (paragraph 94).
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