‘If we build it …’ Creating a strategic and sustainable vision for UK R&D
Report on an R&D Society event held on 29 April 2015 at Congress House, London, WC1
Ecosystem: A biological system composed of all the organisms found in a particular physical environment, interacting with it and with each other. Also in extended use: a complex system resembling this. (Oxford English Dictionary)
‘If we build it’, the saying goes, ‘they will come’. The quotation is adapted from the 1989 film Field of Dreams in which an Iowa farmer played by Kevin Costner hears voices telling him to build a baseball diamond; he does and the Chicago White Sox baseball team come and make it their ground.
Can such a soundbite make the journey from an American fantasy to the grittier reality of the UK R&D landscape?
According to the latest figures from the OECD, national expenditure on R&D is 1.625% of GDP, well below on the target EU average of 2%, and even further adrift of the levels in investment in China, Japan and the US. The percentage has declined fairly steadily in recent decades: in 1970, the UK was in the top quartile for R&D spending; now it is in the bottom quartile. At the same time, the OECD and EU averages have increased, led by the US and Germany in particular.
The decline follows the national shift towards a service economy and the closure of many large manufacturing corporations’ in-house R&D departments. With these changes, large parts of a national framework friendly to R&D have been lost. The question now is, if we build it, will they come?
It’s difficult to plan right now
Iain Simpson, chairman of the R&D Society, opened the evening’s discussion before more than 50 attendees from industry, academia and government. He explained the background to the founding of the Society in 1962, when there were a few, large-scale R&D players, and outlined its efforts to adapt to the changing times as many more, much smaller, innovation companies have taken their place, stretching the definition of corporate R&D activity into new areas. As successive governments have accorded an ever lower priority to research, it has become more important to be sure that R&D is understood and managed in the best way. The Society has adapted its role to study this, as well as to be ‘a credible voice of UK R&D’ — albeit one of a number of voices, which also includes, for example, the UK Knowledge Transfer Network, with whom the Society collaborated for this event.
The R&D Society’s stated ambition is to make the UK ‘the best environment in the world for research and development’. But given the figures, it is clearly going to be an uphill struggle. And as the old joke has it, if you had the choice, you wouldn’t choose to start from here.
The society’s present focus is on creating the ‘ecosystem’ that allows economic benefit to be generated from R&D activity. This involves looking at the creation of new enterprises, such as university spinouts, as well as ways to increase R&D collaboration and investment by UK companies and global companies attracted to the UK because of its unique research strengths.
However, speaking barely a week before the most uncertain general election in a generation, Simpson admitted ruefully: ‘It’s difficult to plan right now’. The shaky economic recovery — led once again by consumer spending rather than manufacturing growth — together with uncertainties over the UK’s position in (or out of) Europe and the future of the Union in the face of rising Scottish nationalism are more than enough to see to that. Can a strategic vision be found that is robust enough to weather these political storms and carry forward all our hopes for greater national prosperity?
Yes, but . . .
The chairman for the evening was Will Hutton (@williamnhutton), Principal of Hertford College, Oxford, but more importantly in the context of this event, chairman of the Big Innovation Centre, a charity promoting open innovation, and also a non-executive director of the Satellite Applications Catapult. ‘Hasn’t the UK in fact continued to do rather well on the limited budget that has been allocated for R&D?’ he asked, before answering the question himself: ‘Most would answer, “yes, but . . .”.’
Hasn’t the UK in fact continued to do rather well on the limited budget that has been allocated for R&D? Most would answer, “yes, but . . .” — Will Hutton
Hutton hoped that by focusing on the contribution made by some of the more large-scale infrastructure initiatives, such as the Catapult Centres, the evening would reveal ways forward for more widespread and sustainable innovation. Are the existing policies and networks for supporting R&D capable of delivering substantial economic growth for the UK? And if they are not, what needs to be added, renewed or replaced? Is it really simply a matter of raising national R&D spending across the board? Or is a different answer required?
Hutton then introduced the next speaker, Hermann Hauser (@hermannhauser), once responsible for Olivetti’s global network of research laboratories and later the founder of more than 20 technology companies, by explaining how it was he who had managed to persuade then Business Secretary Peter Mandelson to look at the Fraunhofer institutes in Germany as a possible new pattern for UK R&D, especially in terms of their record in converting new science into applications and prosperity. The Business Secretary in the last government, Vince Cable, was persuaded to take the same journey. But what is the right model for his successor in the new Conservative government, Sajid Javid, to be looking at?
An unexpected ride
Hauser agreed that it had indeed been ‘an unexpected ride’ to get the idea of the Catapult Centres launched by Innovate UK (formerly the Technology Strategy Board) somewhat after the fashion of the Fraunhofer institutes during the last Labour government. ‘And it was a surprise to get it off the ground again with the Coalition.’
However, transferring the German model to the UK is far from straightforward. ‘You can’t just bring it across the Channel and expect it to work,’ said Hauser. For example, each Fraunhofer Institute is headed by a university professor. This works in Germany, where senior academics tend to have industrial experience, but would be unlikely to succeed in the UK.
You can’t just bring [the German model] across the Channel and expect it to work — Hermann Hauser
What has proven to be broadly transferable, is the practice of providing funding on a roughly equal three-way split between competitively won grants jointly funded by industry and government (national and/or EU etc), applied R&D contracts from industry partners, and core government funding to carry out R&D projects to tackle key challenge facing the relevant commercial sector. In adopting the ⅓ / ⅓ / ⅓ model, there was a lot of debate over the third that came directly from industry, Hauser recalled. If this contribution was made much greater than a third, then it raised the question of why industry wasn’t already going down that road of its own accord; if it was much less, then they wouldn’t be sufficiently involved to care about the project — ‘they wouldn’t have much skin in the game,’ as Hauser put it.
There are now seven Catapult Centres, covering cell therapy, digital technology, future cities, high-value manufacturing, offshore renewable energy, satellite applications, and transport systems. The largest of these is the High-Value Manufacturing Catapult, based in Solihull, which covers seven sites with activities ranging from forging to carbon-fibre construction. (It also includes the Advanced Manufacturing Research Centre whose work Keith Ridgway describes below.) It is a measure of industrial interest in these technologies that this Catapult attracts a disproportionate 40% of its funding from industry.
However, Hauser chose to single out by way of example the Cell Therapy Catapult based at Guy’s Hospital in London, which is closely linked to the cutting-edge research of the team led by Professor Fiona Watt, who directs the Centre for Stem Cells and Regenerative Medicine at King’s College London. UK strengths in this scientific field, both in academia and in commercial early-stage research, together with the funding sources of the Wellcome Trust and government Medical Research Council, and access to the clinical infrastructure and patients within the NHS, provide a good illustration of a complete working ‘ecosystem’.
In general, the Catapults ought to meet three criteria, Hauser suggested: they should to be in a field predicted to open up a market worth billions; they should be used not to plug gaps in the UK R&D spectrum, but to maintain and build on areas where the country was already in a leading position; and, there ought to be an absorptive capacity in the economy ready to take advantage of the research advances that emerged. This might mean that significant parts of new product value chains were already located in the country, or that there were global connections in place. The priority, Hauser felt, should be not to benefit single companies — as in the past, which had produced fat and inefficient monoliths — but to back platform technologies from which many firms would be able to innovate and prosper. Identifying the right sectors was the thing. ‘Not supporting a sector that might be very large is abrogating responsibility.’
A sense of place
In the era of globalised business, it might be thought that where things actually happen is immaterial. Yet R&D activity necessarily happens in places. For Matt Reed, a senior director of open innovation at Unilever Research (@UnileverUKI), the question is how to exploit the advantages of place.
Unilever famously has its base — and now its major global research headquarters — at Port Sunlight on Merseyside, the company town built by the founding Lever brothers in the late 19th century. There, Unilever has built an innovation ecosystem that includes the local universities and has drawn in other businesses from the area and from further afield. As well as providing pure research, university partners have an important role not only to train future citizens and leaders, but ‘to speak truth to power,’ said Reed.
Key for Unilever is the need to find a middle ground between being ‘mindlessly global’ and ‘hopelessly local’. Reed believes this is a pertinent theme also for UK plc. ‘Imagining that we will have within the UK’s boundaries all of the elements of the value chain is not realistic,’ he said. ‘We need to focus much more positively on the excellent innovation assets we already have, not least of which is our ability to create intellectual capital, and ensure that these distinctive assets are globally available to paying customers and partners.’
Unilever does not expect its academic partners to create spinouts or licences targeted to corporate wishes or to align their research priorities with the company’s. Instead, the two work together to create a shared open-access infrastructure. At Port Sunlight, the community amounts to 3,000 staff, spanning the full range from pure research to manufacturing and consumer product distribution. Beyond this ‘golden square mile’ partnerships with academia often emerge out of existing government agency relationships.
For example, the Centre for Materials Discovery, created in 2006 within the University of Liverpool, has an open-access laboratory at its heart, which has already attracted £20 million in research funding from further partners. The emphasis is on aligning these partners in terms of ‘common capabilities that they need and we need’, and not on desired research outcomes. Such alignments are more sustainable in the long term and produce less tension over issues such as intellectual property. Unilever benefits from a greater output per researcher, while the universities stand to gain from an ‘exponential’ increase in citations of their research. And the shared facilities can also have a synergetic effect, attracting subsequent waves of investment from research organisations in addition to the original funding company and university partners.
Unilever is now involved in an even larger plan for a Materials Innovations Factory with the University of Liverpool, due to open in 2016, assisted by funding from the Higher Education Funding Council for England as part of the UK Research Partnership Investment Fund. Reed recommended the RPIF as a ‘remarkably simple policy tool’ others might work with. ‘It has a low level of bureaucracy and a high level of pragmatism.’ The company will have its own research space in the facility, which will also incorporate a ‘research hotel’ for visiting research partners.
The UK has still got significant industrial capacity, some of the best universities, government investment, and centres of innovation excellence — Matt Reed
‘The UK has still got significant industrial capacity, some of the best universities, government investment, and centres of innovation excellence, such as the National Physical Laboratory and Silicon Roundabout,’ Reed concluded. Yet, more generally, ‘the trickle-down from R&D to economic benefits isn’t happening.’ The human factor may be the key, and in particular the solutions that can emerge when people working in different environments come into contact. ‘Winning innovation requires close alignment of capital investment and people investment. Governments should recognise that applying academic knowledge to pressing business problems may have a much greater impact than they imagine.’
Niche the market
Place is also key to understanding the emergence of the Advanced Manufacturing Research Centre at the University of Sheffield, as Keith Ridgway explained. ‘Our aim wasn’t to build a centre, but to regenerate our city. It’s wider than many people realise.’ The centre grew out of the aftermath of the 1980s miners’ strike which perforce decimated local industry reliant on coal, steel-making and steel-processing. The response was to ‘niche the market’. The latest evidence of this ongoing process is the recent opening of a single-crystal metal blade casting facility — ‘a very significant repositioning for the city’.
Our aim wasn’t to build a centre, but to regenerate our city — Keith Ridgway
The shift of emphasis from steel sheet and beams as a commodity to precision machining duly attracted the interest of Boeing, which had an offset commitment to buy from UK suppliers as part of a contract it had won with the UK goverment. Establishing an agreement with Boeing was a major coup because of the long-term development cycles in aerospace. ‘With aircraft companies you get their involvement for 20 or 30 years,’ said Ridgway.
The AMRC looked at best practice overseas — at TechSolve in Cincinnati and the Great Lakes Manufacturing Council as well as the Fraunhofer institutes. The advice was to build around a basic factory with maximum flexibility rather than to create overly specialised facilities. The centre now has 100 companies in partnership, including Rolls Royce, Airbus and the UK nuclear industry. Rivals — such as Boeing and Airbus — are prepared to come in under the same roof if the specialist advantages they gain access to, such as greatly reduced parts machining times, are sufficiently great. As systems integrators, such corporations are accustomed to working with parts suppliers of all sorts around the world. ‘They compete on aircraft design, not machining titanium,’ Ridgway pointed out. Although the AMRC has been successful in attracting blue-chip engineering giants, it has proved harder to attract SMEs. ‘They have a very short attention span. SMEs want orders.’
Universities focus on levels 1 to 3 of the 9 widely accepted ‘technology readiness levels’; the Fraunhofer institutes go from 3 to 6, helping to cross the chasms where innovations may fail. But Ridgway believed it was important to be involved at all nine levels, from basic research to proof of concept, testing, and scale-up to commercial readiness. ‘If you don’t do levels 1 to 3, you’re just a consultant,’ he said.
Commercialising Innovation: The Triple Chasm
Uday Phadke, who builds technology-intensive businesses through Cartezia, Accelerator India, and in the Cambridge eco-system, started his career in the aerospace industry but now works across many technology sectors, including media, telecoms, healthcare and automotive in the UK, the US and India. ‘The evening’s question is the one we’ve been trying to address all these years,’ he said.
In the diffusion of innovation, he identified three major stumbling blocks or ‘chasms’. The first comes when you try to convert an idea into a prototype. The second, which is where the greatest number slip up, centres on the failure to build a sustainable business model, even though the product idea itself may be sound. And the last is when it comes to scaling up production.
In the 1990s, said Phadke, government Foresight initiatives focused on Chasm I — applying the near-market test to avoid picking winners. The EU’s Framework programmes have also adopted the same approach, thus ignoring the real challenges of crossing Chasm II, where it is especially important to understand the ecosystem surrounding the innovation. The real challenge facing SMEs in the UK and elsewhere is understanding and pulling the key levers to cross Chasm II: In particular businesses need to develop sustainable business models. But this problem has not been addressed systematically. Even in Cambridge, which has successfully grown to support numerous spinouts and startups, ‘nobody set out with a grand plan,’ said Phadke.
Even in Cambridge, which has successfully grown to support numerous spinouts and startups, ‘nobody set out with a grand plan’ — Uday Phadke
More recently, ministers David Willetts and Vince Cable have intervened with some success to safeguard R&D funding, helping to ensure that ideas continue to cross Chasm I successfully. However, companies large and small still fall short when it comes to navigating Chasm II. Most Venture capital firms, despite the rhetoric, are focused on investing around Chasm III, not Chasm II which continues to be problematic.
Intellectual property and intellectual assets
Beginning the question-and-answer session, Hutton wondered whether the ignorance and confusion regarding the valuation of intellectual property could be dispelled if some agreed protocols were set up. Placing an appropriate value on intellectual property is a difficulty, Phadke agreed. There have been attempts to put it on the balance sheet, but it is easy to undervalue ideas where many people cannot see their promise, while overvaluation tempts universities to put the technology out to license before it is really ready, with the result that the idea is sidelined and never properly developed.
Ridgway said the real value came when you could sell a technology to a major corporation. The problem was that if you sold it to GE, say, you might not get any more work with Rolls Royce. In such situations, ‘sometimes IP turns out to have no value because you’d ruin the business’.
Often though, the big players won’t even look at a ‘rinky-dink developer’. Hermann Hauser’s semiconductor and software development company, ARM, was highly successful, he explained, because it was run instead as a licensing business. ‘The microprocessor in a mobile phone is licensed in to main chip,’ he explained. Phadke agreed that the solution was to focus not on selling the intellectual property, but to think about the customer and revenues, and instead sell the encapsulation of the technology into new products.
Reed thought it would be helpful to broaden the discussion from intellectual property to the full range of intellectual assets. ‘Knowhow and trade secrets are much more valuable than we think.’ Some intellectual assets may not be patentable, he pointed out, or there may be a better chance of generating revenue by not patenting them.
Knowhow and trade secrets are much more valuable than we think — Matt Reed
All the panellists agreed that the UK innovation picture was missing pieces of the puzzle. Hauser suggested that machine learning had the potential to become the biggest general-purpose new technology of the 21st century. But the four internet giants now known by the acronym GAFA (Google, Amazon, Facebook, Apple) are busy buying up the most promising players. In this country, although there is much good research going on, there aren’t the big investors who will make it possible to keep up with the Americans. Sheffield’s precision metalworking ecosystem has likewise been identified as lacking the necessary big player to drive it on to greater success. Likewise, Hutton added, it may be hard to make the most of the invention of graphene in the absence of a chemicals giant such as ICI.
Not just techies
Jane Gate of AIRTO suggested that greater use might be made of the existing infrastructure represented by public and private sector research organisations, many of which were increasingly working in collaboration with UK industry and even internationally. They had the potential to have a greater catalytic impact on the national economy, she said. But Reed wondered whether these agencies had changed sufficiently to be have the impact they could and should in today’s environment. ‘They have a fantastic opportunity to drive surrounding ecosystems,’ he agreed.
Eva Pascoe of Cybersalon felt that a closer connection between the Catapults and top retailers would be of benefit. The innovation policies of Marks and Spencer in areas such as sustainable packaging, for example, had supported many SMEs. Phadke agreed that retailers have much to gain by tapping some of the Catapults rather than being ‘driven by quarterly reporting cycles’. Reed added that the business of R&D strategy should be shared more widely still: ‘How do we get people without a technology background to see that they too can play a role, and that the techies conversely don’t always have all it takes?’ Innovation, Reed added, is in essence the ‘nagging belief that there must be a better way. It is as much a liberal art as science and technology’.
Futurologist James Woudhuysen sought to challenge the speakers to be more proactive in following through on the vision for innovation dangled before us in the meeting’s title. ‘Do we need to be more fundamental in holding politicians accountable for failing to act?’
Hutton turned his fire on the financial markets, especially in the UK. Their short-termism leads them to shun companies that invest heavily on R&D that may have a long payback period. With that in mind, he invited the panellists to give their vision for the UK in 2030. Hauser was cautiously optimistic. The concept of industrial strategy that became anathema during the Thatcher government has been making a slow return under Cable. He hoped that progress would continue after the election. Having such a strategy in place is economically vital, not least for new technology sectors that are coming along. He offered an example of such a sector. Preventive healthcare is a fast-growing market globally thanks to consumer demand and increased lifespans in which the UK has the necessary ecosystem in place, with research in machine learning and new healthcare technologies and the vast data resource of the NHS. Phadke and Reed concurred that this was a huge opportunity. And the reappointment of George Freeman as the world’s first minister for life sciences in the new government underlines the continuing drive in this field.
But this was just one sector. In too many others, said Hutton, ‘with a mass of technologies coming at us, we haven’t got the ecosystem, and we have to change that.’