By Dr Nasira Bradley, Adam Smith Business School, University of Glasgow, and founder of Innovation and Growth Think Tank.
The Department for Business, Energy & Industrial Strategy (BEIS) Research and Development Roadmap focuses on a worthy goal – to strengthen innovation to tackle the major challenges facing the UK economy. However, a focus on enhancing research and development without tackling the problem that so few of the best UK SMEs grow to world scale is misplaced and leaves the strategy exposed to under-delivery.
Why is it important to grow our own ‘Frontier Giants’ – as they have been called? The answer is given in the Roadmap itself: more than two-thirds of research and development (R&D) funding comes from private sector and the largest firms have the deepest pockets. As a proportion of all companies, the UK has approximately one-sixth of the share of large firms in the US.
It is not the share of R&D in itself which is important, rather it is how the gains from this activity translate into wealth and wellbeing. Large firms deliver approximately 330 times the value-added of an SME, according to 2013 Europe-wide survey by the European Central Bank. The disparity in the UK is even larger. UK BEIS population estimates of 2019 (PDF) show that large firms in the UK have approximately 700 times the turnover and 500 times the employment of SMEs.
If we truly wish to bring the benefits of innovation to be translated into greater employment, wealth and wellbeing for the economy, we have to recognise this huge difference and realise that translation of R&D innovation has to be joined up with understanding of what is preventing scaleup within the UK.
The issue is also crucial for the aim of attracting more skilled and professional workers into the economy from abroad or keeping our own talent in Britain. Larger companies offer more opportunities and more challenging and rewarding jobs.
One need only look at Google’s employment of 4,000 plus people in the UK versus its 100,000 plus employment in the US to understand that the loss of Deep Mind, acquired by Google in 2014, is significant. Deep Mind is one of the brightest technology companies to be started in the UK in recent years. We need to understand the reasons why its founders preferred to be acquired by the tech-giant rather than trying to grow themselves to be a Google-equivalent.
It is worth noting that the Roadmap lauds the example of the development of the CARMA robot in Manchester, which is being commercialised with Nuvia, an American firm, rather than highlighting Graphcore, a British start-up that is at the forefront in quantum computing, a revolution that will truly take AI into a different dimension.
These are small examples which illustrate why it is important to devise a strategy that addresses the very innovation eco-system itself, which includes scale up as well as R&D. If we can understand why so many British firms prefer to sell-out rather than grow independently and try to remove the barriers, we automatically tackle a host of the other aims of this roadmap.
The scaling up of SMEs (Small and medium-sized enterprises) into UK’s own giant firms is not restricted to lack of finance as has been well recognised in various reports – it is an important but not sufficient condition. Scale-up is a far more complex issue, involving not least the lack of similar protection mechanisms that exist in the US that enable firm growth. These include: US defence procurement contracts, dual class shares, ‘poison pill’ mechanisms to deter takeovers, staggered boards and national interest tests.
A firm like Cobham would unlikely have been sold off in the US to foreign buyers, as happened in the UK last year. Astrazenca, a British firm much lauded currently for its part in search for a coronavirus vaccine, valiantly fought off a takeover without any of the protection mechanisms that exist in the US – dual class voting shares, let alone hostile takeover protection mechanisms. The regulatory and legal weaknesses in the UK have been addressed in detail in articles and books, most recently by Colin Mayer, Peter Moores Professor of Management Studies at the Saïd Business School, Oxford, in his book Prosperity: Better Business makes the Greater Good.
However, addressing the inadequacies of regulation is also not in itself sufficient, this is a complex issue and answers to the problem seem to reside deeper. Herman Hauser, founder of the highly successful chip-designer ARM, which was bought by Softbank of Japan in 2016, has pointed to issues of culture and mindset – a theme echoed by Clayton Christensen, an innovation legend in Harvard who has guided the Silicon Valley giants over the last two decades.
He stresses the importance of a disruptive innovation mindset and a market-creating approach. This very different way of thinking can be imported with the attraction of international skilled human capital, but it can also become part of the innovation strategy with links to incorporate this learning into our management schools as well as creating the deeper connections with industry, as exist in the US between its leading universities and industry.
A problem with so many different facets calls for an overarching connecting body to connect industry and business with academia and policy makers. The proposal to set up an Innovation Expert Board is a good start, but it needs a wider forum such as a National Science Foundation or Defence Innovation Board, which exist in the US.
There are reports that Dominic Cummings, the Prime Minister’s chief adviser, want to establish a British equivalent of DARPA, the US Defense Advanced Research Projects Agency, which has been the catalyst for many innovations. But emulating DARPA without recognising that its spending is dwarfed by the R&D expenditure of the US Department of Defense sets up the proposed UK agency with unrealistic expectations of delivery.
The basic message is – that focus on expanding R&D is a worthy initiative, but it should not be the goal. The goal should be the delivery of an innovation ecosystem, of which R&D increase, linkages with institutes, change of culture and mindsets and revamping regulation at its very roots – all should be addressed, if we wish to use innovation to deliver growth and benefit to all, levelling wellbeing across the UK.
Dr Nasira Bradley’s research has focussed on Innovation, productivity and growth systems, with prior experience in R&D in High Tech innovation industry.
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