INTRODUCTION

  1.  This paper represents comments from the CBI for consideration by the House of Commons Science and Technology Committee during their inquiry into "Engineering and Physical Science Based Innovation". It represents the summation of views gathered from members for previous inquiries and consultations, rather than a distinct consultation of our members.

  2.  This response is submitted after the original closing date for evidence, as agreed with the Clerk of the Committee. The reason for this, was to await the publication of the 1998 Innovation Trends Survey, on 15 July 1998. Attached to this response is the Technology & Innovation Brief[9], which summarises the results. The attention of the Committee is also drawn to the sectoral breakdowns from the full data analysis, which is available at www.cbi.org.uk/innovation. Further analysis of the data is possible and the CBI would be happy to explore this with the Committee.

OVERARCHING COMMENTS

  3.  The primary question that the Committee has posed regards "the manner in which companies in the fields of engineering and physical sciences decide on developing new products and processes and the factors influencing their decisions". This year's Innovation Trends Survey focuses on the attitude of companies towards innovation and it is this analysis which gives cause for concern.

  4.  The principle results of the survey indicate a drop in the level of expenditure on innovation from a peak in 1994. This trend closely mirrors other economic indicators such as business confidence[10] and growth in GDP.

  5.  It is wrong to suggest that the UK does not have companies or sectors that are world class when it comes to innovation, but the message from this year's survey is that many view innovation as an area to be cut during periods of difficult trading. Since the early 1990s the CBI and Department of Trade & Industry (DTI) have been promoting the message that innovation is the difference between a flourishing business and a sinking business. The evidence from this year's Innovation Trends Survey is that this message is only getting through in limited terms.

  6.  The focus of the Science & Technology Committee's inquiry is on the engineering and physical sciences. Much has been said about the poor exploitation record of the UK, especially in terms of the physical sciences. However, care must be taken in interpreting this viewpoint, as the link between the physical sciences research base and the market place is less direct than others (for example pharmaceuticals and chemicals). Many discoveries in this area are not directly exploited, but find their way into products and processes through intermediaries. Perhaps the best example of this is the application of laser technology, which originally was a technology looking for a market, but can now be found in telecommunications, cutting, medical health and many other sectors.

THE KEY DRIVERS TO INNOVATION

  7.  This year's Innovation Trends Survey asked respondents to rank the key drivers to innovation. By far the most important drivers were "customer expectations or requirements" (with a mean ranking of 1.9, with 1 indicating the most significant) and "competition" (mean ranking of 2.6). The least significant driver was "Government grants or tax concessions" (5.7).

  8.  Such a ranking is perhaps unsurprising as companies develop products and improve processes to meet customer requirements—companies do not look for grants to support research without knowing the market in which they are working. However, the ranking could also mean that companies do not view existing "Government grants or tax concessions" as incentives. Such a view may change if further incentives were available. Either way companies do not believe these will increase in importance in the future, but rather decrease.

INTER-CHANGE BETWEEN THE SCIENCE BASE AND INDUSTRY

  9.  Despite these results we do believe that the Government should continue to support schemes that encourage the targeted exploitation of science and technology. People, through their skills and the ability to work together, are the primary drivers for technology transfer in every sector.

  10.  The types of scheme that have proved successful in recent years supports this view. The Teaching Company Scheme for example, has a good reputation both in universities and industry that receives an "associate". The fact that 50 per cent of associates are subsequently employed by the company in which they are placed and in total around three-quarters take jobs in industry, support this reputation. The quinquennial review of the scheme in 1996, although recommending some improvements, also recommended its expansion.

  11.  Similarly schemes such as the Postgraduate Training Partnership, the Industrial Quota Case Awards and the Engineering Doctorate all provide mechanisms to place individuals within a commercial environment, whilst maintaining academic rigour. Although many of these schemes are relatively new compared to the TCS, early indications are that the PTP is also increasing the numbers of graduates moving into industry [11]. If over time, this has an effect of increasing mobility between industry and universities this should facilitate the exploitation of novel technology and processes—an area that, in this year's Innovation Trends Survey, UK domestic companies seem reluctant to invest in.

FORESIGHT AND THE ROLE OF THE EPSRC

  12.  Since the 1993 White Paper on science and technology, there have been significant changes in the EPSRC. Many CBI members have felt these have been positive with the Research Council leading such initiatives as the Faraday network and the Industrial Quota Case Awards. We are encouraging the EPSRC to continue this positive approach towards industry, whilst maintaining longer-term objectives.

  13.  Similarly the Council has also carried out more in-depth analysis of how their research funding and priorities fit in the Foresight objectives[12]. We would urge that, following future rounds of Foresight, all Research and Funding Councils should adopt a similar approach.

  14.  CBI members continue to note that, despite the 1993 White Paper and the Foresight programme, it remains difficult to see the co-ordination of spending across Government. Even within the Office of Science & Technology it is difficult to see who maintains an overview of the science budget—the Director General of the Research Councils or the Chief Scientific Adviser, who is also "Head of the OST".

  15.  The CBI has and continues to believe that Foresight can further develop its role of co-ordinating the significant investment in research across Government, as well as build on the success of enhancing the dialogue between Government, universities and industry. The current consultation on the future shape of the Foresight programme is an opportunity to achieve these objectives.

  16.  The views of the CBI on the funding of high quality research in our science base have previously been presented to the Committee [13]. We continue to have concerns that our leading research establishments are not supported to cover the full cost of their research and that this will lead to problems in the future.

  17.  However there is also an issue on the exploitation of new ideas and technologies by local SMEs. We believe that a third leg of funding—bringing together appropriate resources of the DTI, Funding and Research Councils, along with the Regional Development Agencies in a pivotal role—is required to translate technology and enhance mobility into companies that would not otherwise consider innovation as a priority. This will only be effective if aligned with professional recognition by those university departments and academics fulfilling this role.

CONCLUDING REMARKS

  18.  The CBI remains concerned about the less positive attitude expressed by UK domestic companies towards innovation. Innovation is about the successful exploitation of new ideas. The majority of companies in this year's Innovation Trends Survey reported that gains in business performance, especially gains in sales revenue and new customers, was most likely to occur from the more recent innovations. It is all the more worrying therefore that the UK still has some way to go to improve its attitude and performance on innovation.

June 1998

10   CBI Industrial Trends Survey (Published quarterly). Back

11   Case for the Continuation of the First Five PTPs, AIRTO Paper 96/3. Back

12   Action for Foresight Engineering and Physical Science Research Council, May 1998 (ISBN 1 899371 427). Back

13   The Implications of the Dearing Report for the Structure and Funding of University Research: Memorandum by the Confederation of British Industry to the House of Commons Science & Technology Committee CBI, October 1997. Back