The UK's lost innovation years
NESTA describes itself as:
Nesta is an independent charity with a mission to help people and organisations bring great ideas to life. We do this by providing investments and grants and mobilising research, networks and skills. Nesta doesn’t work alone. We rely on the strength of the partnerships we form with other innovators, community organisations, educators and investors too.NESTA has undertaken research on innovation in the UK, and has published an Innovation Index. To say the results are disappointing would be an understatement.
NESTA reports that based on their analysis, innovation investments by UK businesses have fallen 14% between 2009 and 2001, on top of a 7% fall in the preceding years. During the years of the recent economic slowdown, NESTA estimates that the investment in innovation by UK businesses has fallen 24 billion pounds. NESTA goes on to point out that that amount is five times what the UK government spends on innovation.
There are a couple of concepts that are important here.
First, the transition from public innovation investments to private or commercial innovation investments is continuing and accelerating. The UK is not alone. In the US we pay the Russians $75 million dollars per astronaut to take us into space. Private organizations will hopefully provide access to space in the coming years. NASA is just one example of the lack of innovation spending by the government, in all sectors. As populations age in the UK and in the US (and in other western countries) we place far more demands on the government for services, which leaves far less for primary innovation and R&D investments. As the recession continues, businesses are finding it hard to invest in innovation, and the gap between expected innovation spend and actual innovation spend is increasing.
Second, while the NESTA report does not address the issue directly, we can say that innovation and entrepreneurship are tightly linked. Unfortunately, entrepreneurs are finding it difficult to obtain the funding they need to start and grow businesses, also a result of the recession and global financial issues. This means the innovation gap widens, because what corporate organizations can't do, entrepreneurs often can. Large companies and the government aren't aggresively investing in innovation, and small businesses and entrepreneurs are finding access to seed money difficult to obtain.
We are approaching a "lost generation" where innovation is concerned, but innovation won't be the victim. Innovation is a capability that will always be at hand. What will be impacted by a continuing lack of innovation are things like improved heathcare, improved food sources, improved transportation. In other words, our quality of life must and will stagnate until these innovation investments increase.
Now, for the potentially good news. Two other numbers from the NESTA report matter.
First, the report finds that only 13% of innovation spending is aligned to R&D. There are two sides to this statistic. On one hand the percentage is small because spending on R&D has declined. On the other, and hopefully more important hand, businesses are realizing that innovation and R&D are related but not the same thing. Businesses are beginning to realize that innovation happens throughout a product life cycle, and across a range of outcomes, to include business model innovation, service innovation, channel innovation, customer experience innovation. The definition of innovation and its potential outcomes are increasing, which is a good thing, because investment in R&D is expensive and time consuming, but investments in other forms of innovation can deliver value as well.
Second, the report suggests that there are two sources of economic growth: increased inputs (raw materials, equipment, brain power, dollars) and innovation. The report concludes that 63% of economic growth in the UK between 2000-2008 is due to innovation. This realization matters. We need politicians in the UK, and currently in the presidential contest in the US, to realize what a significant contribution to economic growth innovation can play. Once we realize how much growth potential innovation can provide, we'll return to policies and programs that foster more innovation. And not just R&D tax credits, but programs that encourage innovation in all its forms, and in every type of business, from entrepreneurial to multinational.
This report should serve as a wakeup call for innovators, for governments and for anyone who desires more economic growth. Innovation is the key driver for sustained economic growth. We need to unleash the entrepreneurs, small business people and innovators in large organizations. Are you listening, House of Commons? Are you listening House of Representatives?