The Digital Powerhouse

The North of England’s digital economy can pioneer a different way of ‘doing tech’ — one that is less inward looking and more anchored in its surroundings

By Benedict Dellot @benedictdel

@technorthhq @impacthub

#DigitalPowerhouse

Foreword

Ed Vaizey Digital Economy Minster

James Wharton Northern Powerhouse Minister

The North of England, long famous for its industrial might and entrepreneurial drive, is now being recognised for its creative clout and innovative thinking. These attributes explain the recent surge in growth in the tech communities across the North, from Newcastle to Manchester, from Liverpool to the Tees Valley.

This Government is determined to rebalance the economy by building a Northern Powerhouse. That is why we have tasked Tech North with unleashing the potential of Northern tech clusters using a £2m annual budget from Government to deliver initiatives such as Northern Stars and Founders Network.

We have also given £11m to local authorities in Manchester, Leeds and Sheffield to support the development of Northern tech businesses. These grants will be used to help nurture start-ups, foster collaboration, and provide mentoring, learning and business support.

But, as The Digital Powerhouse report sets out, there is much more to be done. There are huge opportunities for tech companies to grow: devolution, smart cities, big data, and the corporate supply chains which depend on new products to remain competitive and prosper. The potential is huge.

This report identifies strong tech clusters in the North and sets out the importance of tech collaboration to economic growth. It highlights opportunities and threats for Northern entrepreneurs and tech companies and gives useful examples of how barriers to growth have previously been overcome.

Tech will not be considered a separate sector for long. It is already at the centre of our lives and is an integral part of the Northern economy. It is increasing the efficiency of industry, closing the gap between customers and business, and transforming data into products.

Starting a tech business could be considered an act of innovation in itself; indeed creativity is a theme which runs through The Digital Powerhouse report. We know that tech businesses can help drive innovation throughout the wider economy, and for them to recognise their maximum potential fresh new methods of collaboration must be used.

Tech North has worked with the RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) and the Impact Hub network to deliver this valuable report. It is leading the way in showing that the North is filled with opportunity and innovation. Now our superb digital companies must take the opportunity to drive the growth which underpins the Northern — and increasingly Digital — Powerhouse.

By working with these dynamic digital entrepreneurs, who are creating growth in their local economies, we will continue to make the North an even greater place to work, live and invest in.

Eileen Burbidge Chair, Tech City UK and Partner, Passion Capital

It is with genuine excitement when we speak of or hear about initiatives boosting the Northern Powerhouse, the push to drive growth and productivity in the world-famous Northern cities of England. This Digital Powerhouse report highlights what a crucial component and role ‘digital’ plays to that growth and how the North has, in abundance, the assets, ambition and opportunities to fuel the value creation of the Northern tech clusters.

This report maps out how the North can better engage with its tech clusters, drawing on respective expertise and innovation in order to provide solutions for smart cities and digitise industry strengths. A North that is fully leveraging its tech clusters can help create new products and services that will lead to new jobs, increased productivity and new businesses. Establishing, expanding and realising these market opportunities will help Northern companies remain competitive and efficient — further attracting even more investment and greater value for the region.

Tech North was established by government and Tech City UK to accelerate the potential of the Northern tech clusters. This report shines a brilliant light on all the assets and opportunities already underway which serve as a foundation for the growth of the new Digital Northern Powerhouse.

Herb Kim Executive Chair, Tech North

Welcome to The Digital Powerhouse, a report from Tech North, in partnership with the RSA and the Impact Hub network. We commissioned the report to investigate the opportunities that exist for the North’s digital tech sector which we believe is key to the success of the Northern Powerhouse.

The Digital Powerhouse report demonstrates how the North can grow its economy by better connecting its growing tech clusters with its own market opportunities, with government devolution, digitisation of services, corporate need for disruptive tech and the power of data all examined.

We’ve been delighted by the input we’ve received from across the North. Through roundtables and interviews, we’ve been able to incorporate ideas and insights which form the report’s backbone.

What’s clear is that new thinking is required to make best use of the tech cluster expertise, assets and opportunities here in the North, and we hope this report acts as a catalyst for this.

The Vision

Introducing the Digital Powerhouse

The North’s digital economy is thriving. Today the region is home to seven of the UK’s 27 key tech clusters, each of which boast pioneering businesses, ambitious founders and accomplished innovators — all of whom Tech North was established to support. The proliferation of accelerators, co-working spaces, meetup groups and community events is testament to the North’s enthusiasm for the digital economy, and to the widespread belief that there are better things to come. From the launch of the C4DI co-working space in Hull, to the expansion of Newcastle’s well-regarded Ignite accelerator programme, through to the continued success of Liverpool’s Baltic Triangle, this is the story of a ‘Digital Powerhouse’ in the making.

What does this mean in economic terms? The region’s tech businesses produce £9.9bn in Gross Value Added (GVA), amounting to 5.2 percent of the North’s total economic output. Over 280,000 tech workers are employed either in tech businesses or traditional industries, the equivalent to 1 in 20 of the workforce. The significance of the North’s tech scene becomes more apparent when set against the picture for the UK as a whole. Eighteen percent of the nation’s tech workers are based here, and the largest tech cluster outside of London (by employee size) is in Manchester. Sage UK, based in Newcastle, is the UK’s only technology company in the FTSE 100.

Northern cities are making particular headway in several subsectors of the digital economy. Manchester has a world-class digital advertising cluster, Hull is building up its expertise in e-commerce, and Liverpool is at the forefront of the market for connected devices and the Internet of Things. HealthTech has become a strong suit for Leeds, software is a speciality for Sunderland, and there is a notable grouping of social network businesses taking root in Newcastle. Such is the degree of specialisation that several cities have taken on distinctive monikers, including Liverpool (‘sensor city’), Sheffield (‘maker city’) and Leeds (‘data city’).

Figure 1 shows the over and underrepresentation of different digital subsectors in the North, relative to what would be expected given the prevalence of these subsectors nationwide. These figures, from a company called GrowthIntel that uses Big Data to generate predictive marketing intelligence, are a rough approximation of the region’s current tech specialities and are liable to change as markets shift and new technologies come into play.

The digital economy is a good economy

The emergence of the North’s digital economy has received considerable attention — and for good reason. The sector as a whole grew almost a third faster (in turnover) than the rest of the economy between 2010 and 2014, highlighting its importance as a source of prosperity and wealth. The digital economy also plays a significant role in job creation, notwithstanding the ongoing debate about the long-term impact of tech on employment. Research by the Kauffman Foundation in the US shows that the ICT sector is responsible for a large proportion of all new startups, and that these startups are critical for net job growth. Most importantly, we know that productivity — the gold standard economic indicator — is higher among digital employees than the workforce of any other sector, bar mining.

It not just the founders of tech businesses who benefit from this wealth creation. According to Burning Glass Technologies, a data mining company that analyses labour market information, the average advertised salary of a digital employee is approximately £50,000, 36 percent higher than the advertised average for all sectors. The going rate for a digital worker in Leeds is £47,959, while in Liverpool it is £42,153 (see Figure 2). Salary growth in the tech industry has also sped ahead of wage rises in other sectors. Between 2012 and 2015, advertised digital salaries grew by 29 percent in Leeds, 26 percent in Sunderland and 27 percent in Newcastle & Durham — indicating that they are among areas with the strongest growth in digital salaries.

Looking at the challenging economic landscape of the North as a whole brings the advantages of a thriving digital economy into even sharper focus. If the region were classed as a country, it would be shown to have grown more slowly than all but one EU state in the past 10 years, with levels of productivity that have historically lagged behind the UK average. The devolution of spending powers to cities like Manchester and Leeds, coupled with major new investment programmes such as HS2, are expected by many to boost economic growth and make real the aspirations for a Northern Powerhouse. But it is also important to recognise the role being played by the digital economy, which is grounded in innovation and led by the private sector. As Table 1 shows, employment and productivity are growing at a considerably faster rate in the North’s digital sector than in the region’s non-digital industries.

The coming wave of digitisation

For these reasons alone, Northern aspirations for a bigger digital economy are worthy of attention. However, tech businesses will become even more relevant due to the coming wave of digitisation. Up until recently, the digital economy was primarily concerned with the creation of ICT hardware, server tools and computer software — making it a relatively siloed industry. Yet the spread of digitisation — the process of collecting and converting information into a digital format — means the digital economy is beginning to underpin the activities of nearly every sector. Cisco, the leading voice on the subject, predicts that the UK market for digitising healthcare, retail, transport and energy will be worth £100bn by 2025.

Digitisation is nothing new, but the pace of change is accelerating. The media industry was one of the first sectors to be disrupted by digital innovation, allowing new online players to muscle in on the markets for film, music and news. More recently, the transport, hospitality and restaurant industries have been shaken up by the arrival of sharing economy platforms, such as Uber, Airbnb and Deliveroo, which are now household names. Cisco expects the same forces of digital disruption to transform agriculture, manufacturing and financial services. But this is not just a private sector phenomenon. Education, healthcare and civic governance are all being shaped by digital innovation — often leading to better outcomes for students, patients and citizens in the round.

What is driving digitisation? One factor is technical capabilities. Improvements in computer processing power, storage and bandwidth have ramped up the possibilities for sophisticated data analysis. The world’s stock of available data is also doubling in size every year, thanks to ubiquitous internet connectivity (including access to smart phones) and the spread of internet-connected devices. One estimate suggests the number of IP-enabled sensors worldwide will reach 50 billion by 2020. The question is whether the North’s emerging Digital Powerhouse will be alert to the possibilities of these developments and sit at the forefront of digitisation. The answer of this report is a resounding yes, should the right conditions be met.

The prize of the Digital Powerhouse

The North has a solid foundation to build upon and an enthusiastic tech community with the right ideas and determination. Sage UK, Boohoo and Trident are home grown companies that exemplify what is possible. The task now is to ensure experiences like theirs are not rarities but rather the norm, and that the region’s nascent tech clusters move towards maturity. A fully charged Digital Powerhouse would be one that matches the performance of other leading tech hubs around the world — on startup rates, productivity performance and innovation activity, among other measures. This is no easy task but is a prize worth striving for:

• Raising employee productivity in line with the national average for the tech industry would create an extra £5.7bn in GVA
• Increasing the rate of self-employment in the digital economy in line with the rest of the UK result in over 9,700 more tech founders.

These ambitions will only be met once several ‘creative conditions’ are in place — four of which are already under the spotlight:

Talent — Successful tech clusters depend on a pool of highly skilled workers — not only coders and programmers but also people with sales and marketing expertise. The UK’s digital economy is expected to require an extra 760,000 digital workers between 2015 and 2020. The government’s long-term response has been to introduce compulsory coding within schools, while at a local level several upskilling initiatives have been launched. Examples include Northcoders, which runs coding boot camps for entry-level software developers, and Career Hacker, a new platform using Big Data to help students, teachers and careers advisers keep up with the North’s industry trends. The region is fortunate to already have a number of respected computer science university departments that can be drawn upon for talent.

Infrastructure — Access to superfast broadband, affordable workspace and a modern transport system are basic ingredients for a thriving tech ecosystem. Although Northern cities have been waylaid by a history of underinvestment, the state of the region’s infrastructure has improved in recent years, and several major projects are in the pipeline. The HS2 investment, electrification of the Midland Mainline railway (albeit on hold) and the creation of the Transport for the North partnership are all promising developments. So too are the recent announcements by the Chancellor to build a HS3 line and widen the M62 road link between Leeds and Manchester. Meanwhile, several cities have ambitions to introduce ‘ultrafast’ broadband (at 1GB speeds), opening up new avenues for digital innovation. By 2017, 150,000 premises in Hull and East Yorkshire will have access to Fibre-to-the-Premises (FTTP) broadband.

Finance — Banks, grant-making bodies, angel investors and venture capitalists (VCs) are all essential players whose capital injections keep tech clusters in motion. Although the biggest VCs and wealthiest angels are based in London, the North is home to a modest but expanding investment community. The tech investment firm GP Bullhound established its Manchester office in 2014, while Newcastle-based Northstar Ventures now has over £95m under management. Added to these are accelerators like Dotforge operating in Sheffield, Leeds and Manchester, and Ignite in Newcastle and Manchester, both of which offer equity-based funding to startups. Tech North is also leading the creation of a co-investment fund that aims to catalyse private investment in the North, allowing easier access to finance for the tech community.

Culture — Studies show that clusters perform best when there is a tight-knit community of businesses and a culture of openness and collaboration. Northern cities perform strongly in this regard. Sheffield Digital, Silicon Drinkabout in Leeds and Creative Kitchen in Liverpool are among the many networking groups that bring people together to encourage collaboration and support, and in many cases promote the local tech scene. The North also boasts several vibrant incubators and co-working spaces, such as Baltic Creative in Liverpool, as well as major tech festivals like FutureEverything and Thinking Digital. This is not to mention the wider cultural and heritage assets that draw talent to the region, from the nightlife of Newcastle to the great outdoors of the Peak District.

The missing condition

Finance, infrastructure, talent and culture are the bedrocks of a digital economy, and they are rightly taking centre stage in efforts to build the North’s Digital Powerhouse. However, this report argues that we also need to pay attention to a fifth creative condition: market opportunities. By this we mean the ability of tech businesses to find clients and develop digital products and services that meet their needs. As important as the aforementioned factors are, ultimately the survival and growth of digital businesses in the North rests on them winning contracts and having paying customers. Focusing on market opportunities would signal a step-up in the nature of business support from initiatives that boost the supply (of tech businesses) to those that stimulate demand (for their products and services).

Evidence indicates tech businesses would benefit from such a focus. A recent survey undertaken as part of Tech City UK and Nesta’s Tech Nation study found that many UK tech firms believe they are being held back by a weak economic climate. The figures are particularly high for several Northern cities, with 25 percent of tech businesses in Hull and 36 percent of those in Sheffield and Rotherham citing a poor economic climate as a concern. The sentiment is echoed in the findings of the UK’s Small Business Survey. Its latest results show that 37 percent of businesses in the ICT industry — another way of framing the digital economy — believe they are weak at entering into new markets, and 24 percent say they have difficulty introducing new products and services. The problem is particularly acute for tech companies in the North as they appear more dependent on revenue from customer sales to finance growth, rather than investment finance.

In this report we look at how tech businesses across the North can connect more effectively with the wealth of market opportunities on their doorstep. The region has almost one million businesses and is home to several large corporates — including Sky, Asda, BAE Systems, The Co-operative Group and First Direct — a number of whom could be considered potential clients. As many opportunities exist in the public sector, with health services, education providers, housing associations and other bodies all tendering for products and services that the region’s tech firms could provide. Alongside these more direct business opportunities, the report considers how tech businesses can make better use of the knowledge held by universities, science parks and other businesses, so as to help them innovate and develop the next generation of digital products and services.

Our ultimate argument is that the North’s aspirations for a Digital Powerhouse can be best met by focusing on demand, and by encouraging tech businesses to orient themselves to mainstream market opportunities.

Next generation clusters

While the purpose of this report is first and foremost to identify ways of supporting the North’s digital economy, the surrounding community has as much to gain from collaborative innovation, where multiple parties generate new products and services for mutual advantage. Local public services have the opportunity to be at the forefront of digitisation — from delivering new educational learning tools in the classroom, to introducing telecare systems across GP surgeries. In the same way, putting digital tools at the disposal of local businesses promises to raise productivity and give firms a competitive edge over their rivals. Not just in retail and media, but in advanced manufacturing, life sciences, logistics and energy production — all sectors where the North punches above its weight. In this way, the region can become a test-bed for innovation.

Collaboration does not have to stop there. Should partnerships yield results, the next logical step would be to take locally-born and locally-tested innovations onto the world stage. A local car manufacturer could showcase the machine sensor technology of a home-grown IoT startup it has worked with, while NHS commissioners could champion among their peers the pioneering technology they have purchased from a Northern HealthTech company. Around the world, hundreds of conferences, trade shows and high-level meetings are drawing together influential leaders in the public and private sectors — and these present the ideal opportunity to spread the word of Northern tech innovations. Local clients of tech businesses should fly the flag for them internationally, recognising that it will be in their benefit if the North is seen as a global centre of tech excellence.

Collaborative innovation of this kind marks a departure from the usual way of ‘doing tech’. The archetypal cluster is one where tech businesses operate in siloes, untethered from the cities in which they operate. Silicon Valley — which sets the bar for all clusters — is at the extreme end of this disconnect. Measured against the number of IPOs and multi-million dollar businesses, the Californian hub is unbeatable and the city’s highly skilled workers have certainly benefited in the form of plentiful jobs and high wages. Yet for the everyday citizen of San Francisco, and for the businesses and public services that operate in its shadow, the benefits are less obvious. Not every cluster is so detached from its surroundings, but there is a general tendency to consider only the amount of wealth generated by digital economies rather than how that wealth is created and distributed.

The starting point for this report is to claim that the North’s Digital Powerhouse can forge a different path — one where tech businesses are tightly woven into the fabric of their cities, where public services and surrounding businesses are ready and willing to co-innovate, and where all citizens have an incentive to throw their weight behind creating a prosperous digital economy. We hope our report provokes a conversation about how this vision can be realised, and that it articulates the potential prizes that are at stake. We begin by exploring opportunities for collaboration in the private sector, before moving onto public sector partnership and finally the potential for wider knowledge exchange.

Private Sector Collaboration

With the flurry of media commentary surrounding social networking sites like Facebook and sharing economy platforms like Uber, we could be forgiven for believing the digital economy is primarily about consumer-facing businesses. Yet the column inches these companies take up belies the fact there is equally significant innovation happening up stream in business-to-business supply chains. From AgriTech that streamlines the distribution of fertiliser on farms, through to sensors that monitor machinery in factories, the potential for digital innovation to augment production in all corners of the private sector is considerable.

Attuned to the possibilities, many corporates have begun to partner with tech businesses and buy in their expertise. In some cases, this means purchasing off-the-shelf digital products (e.g. CRM software), while in others it means commissioning tailor-made tech solutions. At the more intense end of the collaborative spectrum, companies with capital are investing in fledgling tech startups or acquiring firms and their talent outright. Why would corporates go this trouble rather than innovate in-house? According to the US academic Clayton Christen, large incumbent businesses often struggle to generate ground-breaking innovations on their own because they are focused on meeting the needs of existing customers through incremental change.

The scope for tech businesses to collaborate with private sector firms is as great in the North as anywhere else. The region boasts close to a million businesses, including 600 large companies employing more than 500 people. Among the major corporates with a presence in the region are Sopra Steria, Barclays, Sky, Siemens, BAE Systems, Asda and The Co-operative Group. Barclays are reported to spend £3 billion on technology across their operations, while the Co-operative Group spends around £400m — some of which may already flow to Northern companies. However, the opportunities for collaboration are far from exhausted. The UK as a whole ranks 15th out of 29 European countries on a measure of digital integration among businesses, indicating substantial room for improvement.

This chapter argues that it is within the North’s gift to become a world leader in private sector-led collaborative innovation. In doing so, we home in on a handful of sectors in the region and discuss how they might benefit from working more closely with surrounding tech clusters. These industries were chosen according to several factors, including their total output, growth rate, and perceived readiness for digitisation. Table 2 below lists the top 20 sectors in the North by overall turnover, clearly showing that retail, manufacturing and logistics are three large markets that deserve closer attention from the tech community. The North’s media industry is not as large in terms of total output, but is significant relative to the size of the sector in other UK regions.

Retail and gambling

When it comes to sheer size, few sectors measure up against retail. It is the biggest industry in the North and continues to grow — by 7 percent in turnover between 2008/09 and 2012/13. Retail trade is worth £73 billion in turnover to the region’s economy, while wholesale retail contributes £95.6 billion. According to Cisco’s analysis, retail is also an industry ripe for digitisation (see Table 3). E-commerce tools, customer relationship management (CRM) software and digital marketing services are nothing new in the world of retail, but they are becoming more sophisticated thanks to Big Data and improved analytics tools. New technologies including anti-theft gadgets, inventory management tools and beacon tech — devices that push signals and information to customers in store — promise to further boost the capabilities of retailers.

Just as the North has a sizeable retail sector, so too does it have the talent to positively disrupt it. Nationally significant clusters in e-commerce exist in Newcastle, Manchester and Sheffield, while large digital advertising and marketing clusters have taken root in Manchester and Leeds. Rotherham-based Linktagger specialises in beacon and NFC (Near Field Communications) hardware, which, among other uses, enables retailers to send special offers to people as they shop. In Salford, a business called Formisimo has developed analytics software to help online retailers uncover pain points in their web forms and improve sales conversion rates. Meanwhile in Manchester, a company called Gnatta has created award-winning ‘omni-channel’ CRM software to seamlessly align all communication activities between vendors and their customers.

The gambling sector is another strong suit for Northern cities. It ranks in the top 20 industries by turnover in all three Northern regions, and its considerable growth rate shows little sign of petering out. Overall the sector is worth £14.9 billion in turnover to the North, and is nearly twice the size of the legal and accountancy trade. BetFred is headquartered in Warrington, Sky Bet in Leeds, Tombola in Sunderland and Bet365 in Stoke. As with the wider retail industry, there is clear potential for betting companies like these to make use of the digital expertise in nearby tech clusters. The application of digital tools, however, will pose further ethical dilemmas for an industry already faced with accusations of being indifferent to problem gambling. How the advocates of BetTech approach this challenge will be a litmus test for the community-conscious vision of a Digital Powerhouse.

Manufacturing

International competition has made it increasing difficult to maintain a strong industrial base, as shown recently in UK’s Tata steel mills. Yet while steel production may be under pressure, the UK is still home to world class manufacturers in automotives, pharmaceuticals and life sciences. Manufacturing remains particularly important to the North, contributing £150.5 billion in turnover to the economy and employing 805,500 people. Regional specialisms span food production (e.g. Cranswick in Hull), textiles (e.g. James Dewhurst in Manchester), chemicals (e.g. Kerling in Runcorn), and automotives (e.g. Nissan in Sunderland). The North has also nurtured a number of advanced manufacturing clusters, including groupings of aerospace businesses in Lancashire, robotics companies in Yorkshire and developers of graphene-based solutions in Manchester.

What does manufacturing look like in the digital age? The implications of digitisation for heavy industry are as profound as they are for services. New machine learning software can help engineers predict when their tools are likely to need replacing, while sensors on the factory floor can highlight faults or idle activity in process lines. Machine transmitters and computer interfaces have been around for more than a decade, but their price has fallen to such a point that most factory equipment can now be affordably monitored. Digitisation has also led to the development of new machine types, including additive tools that build products up layer by layer using 3D modelling software. Such is the excitement around the so-called ‘Industrial Internet’ that Siemens has launched a corporate venturing fund specifically tasked with backing startups that disrupt traditional models of manufacturing.

The factory floors of James Dewhurst in Manchester or Prince’s Foods in Liverpool may seem a world away from the polished offices of the surrounding tech community, but there is ample opportunity for collaboration. 2M Automation is a Manchester-based company that creates automation solutions for factories, and recently worked with Nissan in Sunderland to design a fluid conveying system for a new machine. The region is also home to a vibrant community of IoT enthusiasts, some of which, like Pimoroni in Sheffield, are creating monitoring devices and sensors that can be applied in a factory setting. Nearly every Northern city also has a makerspace, housing tinkerers and entrepreneurs that are modifying digital fabrication tools and product modelling software that could be prominent in the foundries of the future. There is even scope for the region’s cyber security firms to help local manufacturers protect their growing suite of digital enabled machinery.

Logistics

Logistics is what might be called a ‘silent sector’ — indispensable to the functioning of a healthy economy but mostly hidden from view. Included under this banner are road, air and rail haulage firms, port authorities, warehousing businesses and public transport providers. The North has a relatively large logistics base, being home to major businesses such as Eddie Stobart (Carlisle), the Bibby Line Group (Liverpool) and Harrison Solway (Hull). Sheffield boasts one of the biggest warehouse locations in the country — Logistics Hub UK — with Asda, BMW and Amazon all running distribution centres on site. The region also has eight major ports and four major airports. Altogether, logistics accounts for £30.5 billion of private sector turnover in the North, a figure that grew by 11 percent between 2008/09 and 2012/13.

Logistics is not an industry that appears on the verge of a digital revolution, yet recent developments in tech are opening up new avenues for innovation. New digital tools and products are being used to improve inventory management, boost fuel efficiency, enhance insurance estimations and streamline route optimisation. Internet connected devices, for example, allow logistics firms to track the precise location of their goods, while sophisticated GPS systems crunching real time traffic data can help delivery drivers map out the fastest route to their destination. Added to these modest innovations is an emerging field of AutoTech that is transforming vehicles under the bonnet, connecting hundreds of car parts to computers in a bid to improve efficiency and passenger safety. Unilever, which has recognised the potential for digital innovation in transport, wants to reduce emissions from its global logistics network by 40% from 2010–2020.

Can the North’s tech clusters bring similar innovations to the region’s logistics firms? A pioneering business in Sheffield gives cause for optimism. The Floow uses cutting edge telematics technology to improve vehicle insurance services. In practice this means asking the driver to download an app to their smartphone or to install a ‘black box’ into their vehicle to monitor driver behaviour. The Floow supply their services to a number of leading insurers worldwide, and recently secured a deal to receive and process data directly from OEM equipment mounted on Renault and Nissan vehicles. Another company called Nomad Digital in Newcastle provides tech solutions for rail companies, including WiFi systems, devices that monitor train equipment and passenger information displays. Overall, the digital credentials that make Northern tech clusters well suited to transform manufacturing are the same that put them in a good position to improve logistics: specialisms in IoT, expertise in hardware, and talent in software and cloud computing.

Media

Media has made a mark on the local economies of Northern cities. Encompassing TV/Film production, publishing and broadcast activity, the media industry generates £2.9bn in turnover across the region and employs 41,000 people. It has been more than four years since the BBC moved to Salford, and in that time Greater Manchester’s constellation of media companies and talent has mushroomed. MediaCityUK alone accounts for 5 percent of total employment in Salford, with a further 1,700 extra jobs set to be created by 2034. Only recently, the city authorities announced an investment package that will see The Space Project (a film production studio in Manchester) double in size. Yet Manchester is not the only area in the North with a media base. Leeds is home to the BBC’s Yorkshire HQ, Sky TV’s Technology Hub, and Made TV, an independent TV station.

Media was one of the first sectors to be disrupted by digitisation. Newspapers were pushed online, TV made available on demand, and broadcasting of all kinds transformed by CGI and sophisticated post-production tools. As dramatic as these changes seem, however, the potential for digital innovation in media is far from exhausted. Virtual reality, augmented reality and speech-to-speech translation are among the important technologies coming into view. On top of these are the infinite possibilities of enhancing user experience (UX) and visual design. Every newspaper and TV broadcaster is in a battle to stay on trend, including by personalising content and allowing viewers and readers to access content on multiple devices. Only recently the New York Times launched its own virtual reality app to simulate immersive new scenes around the world.

The North’s media industry can respond to these technological trends using the talent on its doorstep. Both Manchester and Leeds play host to nationally significant digital entertainment clusters, as well as to vibrant digital advertising and marketing communities. Home grown startups are well-equipped to create compelling content for local media companies like the BBC — augmenting traditional formats with new games, apps, websites and music. They can also lend vital insights in UI and UX design, search engine optimisation and virtual reality. The latter is a growing strength of Northern clusters, with businesses such as Smashed Crab Studio and VISR in Hull developing new VR experiences. Such is the importance of tech startups to innovation that the BBC chose to create its own startup incubator called Worldwide Labs.

Manchester-based Apadmi is a good example of a local tech firm that has given media companies an edge to their work. Past projects include developing the official app for the X Factor, creating the Guardian’s Witness app for citizen journalism, and supporting with the user experience element of BBC Radio’s award-winning platform — in particular the novel ‘scrolling dial’ that allows users to browse the entire radio schedule. Not far from Apadmi’s office is Fast Web Media, another tech business supporting major media companies. They recently worked with BBC Sport to boost the site’s internet traffic, making editorial changes and identifying commonly used search terms to increase the ranking of BBC webpages on search engines.

Barriers to collaboration

Whether it is retailers partnering with developers of CRM software, car manufacturers linking up with makers of telematics technology, or media houses working with pioneering VR startups, the possibilities for collaborative innovation in the North are numerous. However, several barriers stand in the way of progress:

1. The benefits of digital innovation can be subtle and slow burning — According to a survey by Cisco, just a quarter of global business leaders describe their approach to digital disruption as proactive. Part of the problem is that some businesses are preoccupied with trying to serve the needs of existing markets, and may see digital innovation as an expensive distraction from that task. It does not help that traditional performance metrics such as return on investment (ROI) are ill equipped to capture the long-term impact of new digital tools. Even when leaders do buy into the benefits, they may face an uphill struggle trying to convince junior staff to adopt an external innovation. These barriers are often more acute within small and medium sized businesses, which do not have personnel in house that can systematically identify new digital innovations or understand how they might boost their bottom line.

2. Traditional client arrangements squeeze out new entrants — Experience matters in the tech industry. Buyers of digital products and expertise have implications when it comes to winning contracts. Buyers of digital products and expertise have a tendency to call upon long-standing and larger tech firms. In some cases, this is because buyers lack faith in the ability and maturity of new entrants. A KPMG survey found that 44 percent of corporates cite a lack of maturity as a reason not to work with tech startups. Even when there is goodwill to work with fledgling tech companies, buyers can find it difficult to pinpoint the right partner in a sea of startups (and vice versa). Other stumbling blocks include excessively long lead times in the bidding process and unsympathetic payment terms.

3. Buyer and seller do not always speak the same language — A number of our interviewees described a problem whereby tech businesses create a product before understanding whether a real need for it exists. This is symptomatic of a broader disconnect between the objectives of tech firms and those of prospective clients — something not limited to the North but apparent across the UK. Whereas a young startup may want to change the world or win plaudits with a trailblazing innovation, corporate buyers may be more focused on continuity or low-risk expansion. Efforts to find common ground between buyers and sellers are also occasionally stymied by the poor pitching abilities of founders and the lack of sales talent.

Case study inspiration

For all the talk of open innovation and porous organisational borders, the reality is that partnership work is far from straightforward. As we have seen, collaboration is particularly difficult for the tech community, whose ambitions, language and culture may be out of sync with those of larger clients — especially corporates. Below are two promising initiatives that attempt to bridge the divide:

Action points

Broaching deeper connections between the North’s tech businesses and its traditional industries will be no easy task, and is likely to require a cultural shift among businesses that may take many years to realise. However, several actions can be taken today that would foster better conditions for collaboration:

• Introduce Tech Taster vouchers — To give local firms a better sense of how tech businesses can aid their work, business support organisations in the North should consider introducing vouchers that businesses can cash-in for tech innovation support. These could be modelled on the Creative Credits scheme that was trialled in Manchester and which linked local SMEs with nearby creative firms.
• Establish a Digital Powerhouse Contract Portal — To help buyers connect with sellers of tech services, partners in the North should explore the possibility of creating a portal that collates private and public sector contracts in one place. This could also be a gateway for prime tech suppliers (e.g. Cisco) to publish sub-contracting opportunities to smaller tech firms.
• Champion the tech co-operative model — To help smaller tech firms pool limited resources and benefit from economies of scale, digital groups in the North should consider working with Co-ops UK to introduce founders to the idea of tech co-operatives. Anyone wishing to start a co-operative should be assisted and their experiences shared widely with others in the region.
• Kickstart new corporate-backed accelerators — To provide tech businesses with the best specialist support, Northern Tech groups, together with Tech North, should consider identifying corporates that may be interested in backing accelerators specific to their area, as John Lewis, William Hill and DPD have done. The North’s vibrant retail tech, BetTech and aerospace technology communities might profit from a new accelerator. Shorter, 48-hour hackathons solving specific corporate issues could also be beneficial.

Public Sector Collaboration

Just as digital innovation has become a priority for the private sector, so too is becoming essential to the public sector. Part of the reason is economic: local authorities, health services, education providers and transport systems all face acute financial pressures in the wake of severe public spending cuts. Councils across the North have had to manage budget reductions of almost a third, with Manchester City Council alone forced to find savings of £309m since 2010. Yet the attraction of digital innovation lies as much in improving outcomes for service users and citizens as it does in making efficiency savings. From new telecare systems that link patients with their GPs, to e-government initiatives that allow people to fill in their tax returns online, the scope to use digital products to improve people’s day to day lives is vast.

Below we explore the opportunities for digitisation in several public sector areas, and consider how the region’s tech businesses might serve the needs of local services.

Healthcare

Across the world, healthcare is taking up an ever greater proportion of public expenditure — and the UK is no different. Total public spending on the NHS, social care and other health services grew from 6.2 percent of GDP in 1997 to 8.8 percent of GDP in 2013. There is a desire among clinicians, patient groups and the government alike to see more of this money channelled into digital innovation (tech currently accounts for £4.6bn of the NHS budget). The Department of Health has stated its ambition to creation a ‘paperless NHS’ by 2020, and all NHS Trusts have been asked to create a Local Digital Roadmap setting out how they can help to realise this goal. Other initiatives include the Nursing Technology Fund, which supports nurses to make better use of digital technology, and the Digital Maturity Assessment, which provides a framework for assessing the extent to which healthcare services are making effective use of digital tools.

Not all of these digital products and services must be groundbreaking innovations. A large proportion of healthcare spending — whether in hospitals, GP surgeries or social care services — will continue to go on so-called ‘bread and butter’ technology needs. This includes IT systems, website management and patient records software. But there are also many transformative technologies coming into play. Wearable tech allows the monitoring of patients in their own homes, online platforms bring patients together to share advice on treatments, and 3D printers may soon make bespoke prosthetics a reality. The Internet of Things, which underpins many of these new developments, is expected to boost the UK healthcare market by £48.5bn over the next decade.

The North is fortunate to be at the forefront of this HealthTech movement, with a particularly strong cluster emerging in Leeds and the surrounding area. The city region is home to NHS England, the NHS Data Spine, the Health and Social Care Information Centre and the Yorkshire and Humber Academic Health Science Network. Leeds also counts the health businesses EMIS and TPP as two of its residents. In nearby Bradford, a Digital Catapult was established in 2014 with the goal of nurturing HealthTech businesses in the area, and the government recently gave the green light to a Digital Health Enterprise Zone, which as well as offering tax concessions will connect local HealthTech firms with university facilities, technology and patients willing to test their treatments. eLucid mHealth and Sleepstation are two examples of startups in the North that have managed to break into the nation’s lucrative healthcare markets.

The challenge is to broker more relationships between tech businesses like these and the region’s own healthcare services, which include 80 NHS Trusts and 68 Clinical Commissioning Groups (CCGs), as well as nearby local authorities which spend a large proportion of their budgets on social care. A good example of an existing partnership can be found in West Yorkshire, where locally-based business Immedicare provides a telecare service linking care homes in Airedale with clinicians in the nearby hospital. Another example is the Advanced Digital Institute (ADI) in Bradford, which created a ‘meds companion’ supporting patients to take their medicines on time — a device that is now being trialled with the Bradford Clinical Commissioning Groups. The Northern Health Science Alliance (NHSA), which brings together health services and researchers from across the region, could be the ideal forum to foster more of these collaborations.

Education

Technology is also amplifying the work of educators. Wearable e-learning devices, augmented reality, virtual reality, personalised learning, robotic toys and parent-teacher communication apps are all trends coming into view. Class Dojo is a messaging app that allows teachers to send updates to parents, translating messages into several languages where parents are non-native English speakers. Another tool called Knewton helps teachers create tailor made lessons for every student by monitoring how they respond to different content and learning materials — be it games, videos or literature. Equally impressive is an app called Learner Mosaic, which bridges the gap between online and offline learning. After observing how children react to particular tasks, it notifies parents of their strengths and weaknesses along multiple dimensions (e.g. colour recognition and empathy) and gives advice on what they can do to support their children through non-digital means.

Although London and Cambridge have dominated the digital learning market for many years, the North is home to a number of businesses making headway in this sector. Manchester, Liverpool, Sunderland, Newcastle and Durham all count EdTech as a specialism. Shoofly is a business just outside Sunderland that creates educational games, apps and other e-learning devices. Their one-stop-shop service for accessing learning materials — School360 — is used by 197 schools and over 5000 teachers nationwide. Osborne Technologies in Barnsley has created a suite of educational products, including EntrySign, a device to monitor teacher and pupil movements within schools, and My Romo, a robot that introduces the basics of coding to children. Other startups in the region have focused on the market for careers brokerage, including Geek Talent— a winner of Tech North’s Northern Stars award — which helps recruiters find talent in STEM subjects.

While each of these companies has clients around the country and further afield, there are clear opportunities for Northern businesses to collaborate more with educational organisations on their doorstep. The region has over 7,500 primary and secondary schools, and close to 1,050 FE and Sixth Form colleges — many of which could benefit from a dose of technological expertise. Schools in the UK already spend £900m on EdTech. The acadamisation of schools also promises to give head teachers and governors more freedom to experiment with new learning devices in the classroom. Yet it is not only schools that can benefit from the region’s EdTech businesses. Other potential clients include museums, art galleries and employment service providers, such as Avanta and G4S that operate in Manchester. Good practice on local collaboration can already be found in the region. Optimum, a Doncaster-based firm, supports several schools in the Yorkshire area with its Otrack service, which allows teachers and governors to track pupil attainment and progress.

Smart Cities

Whereas the impact of technological innovations is visible on a daily basis in health and education, it takes greater imagination to see how they could transform the nature of infrastructure services. Yet the changes being wrought by digitisation in transport, waste management, energy and other forms of infrastructure spending are just as significant. Few trends illustrate this better than the Smart City agenda, which champions the use of sensors and deep analytics to monitor and improve the delivery of core services — from traffic management and refuse disposal, through to street lighting and city cleaning. Barcelona, which leads the world in the use of Smart City applications, has put sensors to use in designing new bus routes, monitoring the water requirements of parks, and speeding up emergency service response times.

Several clusters in the North now service this fledgling market. In 2014 the Universities of Liverpool and Liverpool John Moores launched a £15m incubator with an explicit focus to nurture sensor-based businesses. With its history of engineering and manufacturing, Sheffield has also built a name for itself in the IoT market that underpins Smart City initiatives, sporting Pimoroni as a local firm known globally for distributing electronic parts for sensor-based devices. Meanwhile, Sunderland Software City was selected by the government-backed Digital Catapult and Future Cities Catapult to be a ‘Boost’ partner, with the role of showcasing the best and brightest IoT ideas developed by companies in the North East. Possibly the most talked about startup to have emerged in the North’s sensor-related industry is Cocoon, based in Leeds, which makes a security device that uses innovative audio technology to detect criminal activity.

Given the relevant expertise of tech businesses in the region, it would be sensible to connect them with Northern public bodies who are kick-starting their own Smart City efforts. One of the largest initiatives underway is Manchester’s CityVerve Project, which will use £10m of government money to trial a series of IoT-enabled activities, including smart lighting, talkative bus stops and smart air-quality monitoring. Other cities in the region are seeking to transform their infrastructure services in the same vein, creating a potentially lucrative market for tech businesses. Public spending on transport in the region alone amounts to £4bn, and this budget is likely to grow as the pan-regional Transport for the North body gets fully up and running. One of its first projects will be to introduce an Oyster-style smart ticketing system across Northern cities.

Local government

Nearly every local authority has ambitious plans to transition more of its services online, allowing residents to pay their council tax, apply for events licenses, and find information about housing benefit entitlements, among other possibilities. The search for cost savings is a major driver. Research by Society of Information Technology Management (Socitm) across 120 local authorities found that face-to-face interactions with residents costs on average £8.62, compared with £0.15 for every web-based transaction. Another driver is transparency, with calls for local authorities to open up more of their accounts and data to public scrutiny. Harrow Council, a local authority at the forefront of these changes, plans to move every service online in the next 5 years, aided by a new MyHarrow tool that allows residents to track progress and receive updates on outstanding enquiries.

The digital infrastructure that lies behind these services is being developed by a number of tech businesses across the region. Most Northern clusters have a strong grouping of software companies, including the North East, which boasts more than 2,300 firms in the city and surrounding area. EvaluAgent, based in Middlesbrough, specialises in workforce engagement software for call centres, while Sunderland-based Orcuma creates CRM case-management tools for clients in the public sector — including Durham County Council. A clear example of how tech businesses can aid the digitisation of council activity can be seen Sheffield, where local business Switchstance created a software application to help Sheffield City Council manage the end-to-end process of recruiting and placing apprentices in firms with the best fit.

Although the market is relatively crowded — particularly with big players like Cisco and IBM — there is scope for greater collaboration between local tech businesses and the North’s local authorities. Indeed, digital services in councils still leave much to be desired. According to a PwC survey, only 28 percent of the UK public believe councils are confidently embracing technology, and only 38 percent say they are satisfied with the digital access they have to council services. New players that can bring an innovative service to the table should therefore be welcomed. Moreover, while council budgets are facing historic cuts, it is likely that the money for digital services (including that for outside procurement) will remain in place, being seen as a source of savings rather than expenses. Newcastle City Council continues to spend £8.6m on traditional ICT every year, while Manchester reportedly has an annual budget of £30–35m.

Barriers to collaboration

Clearly there is no shortage of opportunities for partnership working between tech businesses and public sector organisations in the North. However, the reality is that only a fraction of these are ever acted upon. Three barriers in particular are a hindrance to collaborative innovation:

1. The complexity of procurement procedures

The government has made several changes to public procurement processes. Pre-qualification questionnaires were abolished for all contracts under the EU threshold, a new legal requirement was introduced forcing public sector organisations to pay invoices within 30 days, and it was agreed that most contracts above £25k would be advertised on the Contracts Finder platform. But procurement remains a complex arena for many tech businesses. A 2015 techUK survey of 170 SME tech businesses found that 67 percent believe procurement processes are onerous, indicating that recent changes do not go far enough. One problem is that many companies are still required to submit 3 years’ worth of audited accounts, while another is the tendency for the public sector to undertake very large tenders. On the occasions when small tenders for specific work are floated, there is often a stipulation attached that the winners must work with larger suppliers, which puts off small companies who fear their intelligence and staff may be appropriated.

2. Limited appetite for innovation in the public sector

Commissioners in local government, education, the NHS and elsewhere do not always have the commercial acumen or technical knowledge to design appropriate contracts. A techUK survey of civil servants found that only 20 percent believe their department has the right skills for managing IT suppliers. A deeper seated issue is the conservative approach that some commissioners take towards risk and experimentation. Over two thirds (71 percent) of civil servant respondents to the aforementioned survey said internal culture was the biggest obstacle to change. There is also hesitation among frontline service staff to adopt new tech. A study of teachers, for example, found many to be ill-equipped or reluctant to make use of digital tools in the classroom. This demonstrates the multiple layers of stakeholders that need to be engaged in collaborative innovation.

3. Low awareness of opportunities among tech businesses

Even when public sector bodies are willing to partner with new suppliers, it can often be challenging for tech businesses to connect with them. Both Contracts Finder and G-Cloud — a platform allowing public sector organisations to buy off-the-shelf cloud IT services — have made it easier to find and secure clients. But these schemes are far from perfect, and many tech advocates have voiced concerns about their profile and take-up. Another challenge is that public sector organisations release scant data about their objectives and procurement history, leaving tech businesses with only a basic understanding of what public organisations are looking for and the likelihood of them winning business. It is also worth noting that many tech firms are put off by solution-focused procurement where the ‘answer’ to a given problem is already strictly spelled out up front by commissioners.

4. The stickiness of proprietary software

Public sector organisations are often wedded to proprietary software — such as Microsoft Office products — where the underlying source code cannot be modified. While this has its proponents, it often locks organisations into using the same supplier for long periods, since any alteration may require extensive retraining and possible outlay on new equipment. In contrast, software built on open source platforms — where the underlying source code is freely modified — is easier to change because there is likely to be a suite of similar software packages built on the same code. Not only does this mean the software is often cheaper for public sector organisations to use, it also gives new software developers a chance to break into the market.

Case study inspiration

Whether it is the complexity of procurement procedures, lack of commercial acumen among commissioners, or scarcity of useful data on procurement outcomes, tech businesses in the region face several obstacles that prevent them co-innovating with the public sector. These barriers are not necessarily insurmountable, however, as shown by the following global and local case studies:

Action points

How might collaboration between tech businesses and the public sector be strengthened? Below we set out a number of ideas for organisations in the region to take forward.

• Make the North a digital sandpit for experimental tech — To draw attention to the region and highlight its tech expertise, Northern tech clusters should look at ways they could be proving grounds for experimental technologies. Central government, public services and corporate technology teams could be invited to trial emergent innovations in Northern cities, for example driverless cars, robotics in social care, or the use of blockchain in welfare payments.
• Establish digital immersion events — To improve the public sector’s understanding of the digital economy, public service teams should consider organising ‘immersion events’ with nearby tech communities where they can share procurement knowledge and learn about local needs and strengths.
• Move towards ‘problem-based’ commissioning — To ensure procurement is inclusive and invites experimental ideas, public sector commissioners should consider the option of problem-based commissioning. Unlike solution-focused procurement, the answer is not defined at the outset and applicants are instead encouraged to re-think issues from the bottom up. Tenders should ideally have input from experts who know the tech terrain, and briefs should preferably be written with the guidance of tech companies.
• Open up data on KPIs and procurement results — To help tech businesses better understand what the public sector wants, local authorities and public services should should consider releasing on their key performance indicators (KPIs). They may also wish to publish information on their procurement history, including the average size of contracts, the duration of contracts, and the types of businesses that have secured contracts with them in the past.
• Create a ‘Procurement Powerhouse’ social enterprise — To help public sector organisations connect more easily with local suppliers, Northern entrepreneurs should consider working together to establish a new social enterprise that acts as a matchmaking agent. This could seek to emulate the work of the North East Procurement Organisation (NEPO), which undertakes high-value commissioning on behalf of 11 councils in the North East.
• Encourage the use of open source software — To loosen the grip that proprietary software providers have on the public sector, tech advocates in the North should champion the use of open source software and the tech businesses building it. The North should also back infrastructure platforms like TravelSpirit, which could be a springboard for the region’s startups.

Knowledge Exchange

The last two chapters demonstrated the potential for Northern tech clusters to strengthen public and private sector supply chains. Manchester’s ecommerce cluster was mapped onto the region’s retail industry, Liverpool’s IoT community was held up as a source of ideas for local manufacturing, and Leeds’s vibrant HealthTech scene was highlighted as a potential supplier to nearby health services. In this chapter we take a step back and consider how tech businesses can make better use of surrounding knowledge assets in order to develop more pioneering products and services. The end result of this form of collaboration is not sales or investment opportunities, but rather intellectual property and product ideas.

At first sight it may seem as though the region’s tech clusters have the cards stacked against them in terms of research capabilities. The government and research councils spend only 7 percent of their R&D budget on the North, compared with 37 percent on the South East and 15 percent on London. Yet look closer and it is possible to see a vast amount of latent knowledge that could be wielded for research and product development. Not only is the region home to world-class universities and science parks, it also has a network of businesses — large and small — that could share their intelligence and data. There is also the tech community itself, whose collective body of expertise and experience is not to be underestimated.

Table 5 highlights a number of the North’s key institutions (excluding universities). The rest of this chapter looks at how these and other knowledge assets might be better used by the region’s tech clusters.

Universities

The North is home to 29 universities, 7 of which are in the Russell Group and 3 of which rank in the world’s top 100 higher education institutions (HEIs). To put this into context, there are more world class HEIs in the region than there are in Spain, Italy and France combined. A number of these universities have well respected computer science departments. The Universities of Leeds, Newcastle, Liverpool John Moores and Sheffield rank in the top 10 UK HEIs for paper citations in the field of information economics, while York, Manchester and Sheffield are in the top 10 for paper citations in Big Data. Overall, Northern universities educate 521,000 students at any one time, with 78,000 alumni graduating every academic year. Manchester alone is host to almost 100,000 students.

It is difficult to overstate how much of an asset the university knowledge base is to the region’s digital economy. Evidence shows that the specialisms of universities often shape the trajectory of nearby tech clusters. Nesta research, for example, has found a link between the prevalence of gaming industries in an area and the presence of a games department in a local university. Knowledge transfer partnerships (KTPs), student placements and consultancy work are some of the ways universities can collaborate with tech businesses. A good example of a recent partnership is that between Manchester Metropolitan University (MMU) and a Stockport-based logistics company called ServicePower. Through a KTP, ServicePower worked with researchers at MMU to develop a quantum computing programme that could optimise the fastest routes for vehicle delivery.

Northern universities already perform well on interactions with local businesses. Five of the region’s HEIs rank in the top 10 UK organisations for consultancy research with SMEs. But there is potential to go further, deepening these connections and bringing on board tech businesses that may otherwise have researched alone. We know, for example, that universities in the region could do more to boost their offer on continued professional development. There may also be scope for universities to create discreet programmes specifically to support the local digital economy. Inspiration can be taken from MMU’s Centre for Digital Innovation, which hosts a TV and radio studio, 3D printing facility and teaching space. The involvement of the Universities of Liverpool and Liverpool John Moores in a £15m ‘sensor tech’ incubator is another demonstrator of what is possible.

Corporates

Universities are not the only vehicles for knowledge exchange. More than 600 very large businesses (with 500+ employees) are based in the North, all of which have ideas and expertise that may be of use to surrounding tech companies. The private sector invests approximately £2.7bn in research and development in the North every year, twice the amount spent in London (see Table 6). Knowledge exchange between tech clusters and corporates can range from the short-term and light touch — for example startup guides and mentoring — through to the long-term and intense — such as incubation and staff secondments. Unlike the collaborative innovation discussed in the chapter on private sector supply chains, no money changes hands and the advantages for corporates reveal themselves over a longer period.

What does knowledge exchange of this kind look like in practice? A good example comes from the work of Rabobank, which in partnership with the London accelerator Startupbootcamp is connecting its employees with fledgling FinTech companies looking for financial expertise. Google is another multinational company with strong intentions to support tech businesses. Its Campus space in London provides access to thought-provoking tech talks, as well as a ‘device lab’ where developers can test their applications on multiple devices. On the hardware side, Intel run regular hack events that make valuable connections between tech startups and the company’s expert engineers. Intel is currently running an Internet of Things Roadshow giving training to makers in their new micro-computer ‘Dev Kits’.

Corporate activity of this kind is already visible throughout the North’s tech clusters. In 2014 Santander opened its own incubator in Liverpool, while last year Barclays did the same in Manchester with its new Rise co-working space, which supports tech startups of all kinds. In Leeds, the medical business EMIS will soon be providing health expertise to a new cadre of recruits on the Dotforge Health & Data accelerator. What makes all these examples significant is the degree of corporate commitment involved — bolt-on CSR schemes they are not. Looking to the future, a key task will be to encourage and enable locally-grown, medium-sized firms to play a similar role. A good demonstrator project can be seen in Leeds, where the Yorkshire Post has teamed up with Leeds Beckett University to form a co-working space called Leeds Digital Hub.

Data

A third form of knowledge exchange is data flows. The world’s store of data roughly doubles in size every year, creating more of the raw material that fuels the work of tech companies — including those in the North. Callcredit is a Leeds-based company that harvests and analyses data for retail businesses, Albatross in Cheshire uses health data to help the NHS predict its expenditure more accurately, and Opta in Leeds crunches and packages sports data for broadcasters such as Sky Sports. Partly in a bid to boost commercial applications of data, the government has opened up 15,000 public datasets from government departments and organisations such as the Met Office and Companies House. As a result, the UK is ranked 1st out of 86 countries on the Open Data Barometer. Tech businesses now have access to nationwide information on everything from hospital infection rates to local crime statistics to school performance results.

With central government leading the international pack in opening up their data, attention is now turning to the activities of local government and public services. Information on council spending, benefit claims, property usage and road maintenance are examples of local datasets that could be crunched by tech businesses for research and commercial purposes. Several initiatives have already emerged in Northern cities to collate and connect such data with local innovators. The Leeds Data Mill was established to champion open data in the city, and runs training courses in how to tap into publically available information. In the same vein, Greater Manchester’s Data Synchronisation Programme has worked to release the most useful of the city’s datasets. Developers have since used the data to create apps that incentivise exercise, encourage recycling and measure streetlight energy use.

But public sector data flows are only half the story. Equally exciting is the prospect of opening up the datasets of private sector companies to tech businesses. The North East and Tees Valley Digital Catapult Centre has an explicit remit to encourage greater data sharing between businesses, and it recently partnered with local car manufacturer Nissan to connect its quality assurance data with the surrounding software community. The Catapult Centre also worked with Barclays on a competition that saw local tech firms crunch the bank’s data in a bid to solve several organisational challenges. In Leeds, an EPSRC-backed National Consumer Data Research Centre is encouraging large retailers to share their datasets (such as on sales and loyalty card schemes) and is helping ecommerce businesses mine them for useful insights.

Community

While universities and businesses are important sources of knowledge, some of the richest ideas and insights pass between tech founders, developers and other people in local tech scenes. Evidence shows that firm performance is linked with effective networking — not the careerist and transactional kind but that which is founded on genuine interest, mutual support and sometimes friendship. Taking part in organised gatherings, digital festivals and online platforms are all ways founders and their teams can engage in constructive criticism and friendly debate. Chance encounters are equally important, whether they happen at co-working spaces or the many bars dotted throughout tech clusters. Significantly, the larger and more diverse a tech community is, the greater the pool of ‘collective genius’ to be tapped.

The North is fortunate to have several vibrant tech communities. Networking groups include Sheffield Digital, Silicon Drinkabout in Leeds and Creative Kitchen in Liverpool. Data from the events platform Meetup shows that nearly 1200 people have taken part in digital economy groups in Newcastle and Durham, 1500 in Liverpool and 1950 in Leeds (see Table 7). Hull Digital started in 2009 with just 10 people meeting in a coffee shop, and now has 957 members. Added to these groups are a growing number of tech-focused festivals, such as Thinking Digital in Newcastle, FutureEverything in Manchester and Leeds Digital Festival. Co-working spaces like Newcastle’s Campus North have also taken off, and last year the Chancellor promised to invest millions in three tech hubs in the North: an eight-floor space in Manchester (Forward), a six-floor hub in Leeds (Futurelabs) and a tech hub in Sheffield (MakerHub).

Do tech businesses in the North value these communities? The findings of the recent Tech Nation survey suggest so. 77 percent of founders in Newcastle, Durham and Hull said local networks are an important benefit of their cluster, while 67 percent of founders said the same in Liverpool. The challenge for the North is to expand and deepen these networks further, plugging more of the region’s tech founders into its rich ecosystem. Tech North’s new Founders’ Network is a good start, and will frequently bring the region’s founders together to benefit from peer-to-peer knowledge sharing and skills-based workshops. Another move should be to encourage more of the region’s seasoned entrepreneurs to share their ‘elder wisdom’ with fledgling founders. Lindsay West and David Keel, both from Hull, are two examples of entrepreneurs who head up global companies and are paying it forward through mentoring, incubation and events for nascent Hull-based start-ups. Another goal should be to foster connections between people looking to partner up on a venture. Research suggests that having a co-founder can tip the scales in an entrepreneur’s favour.

Barriers to knowledge exchange

While knowledge may be abundant, it is not necessarily easy to retrieve. Universities can be labyrinths, corporates are often difficult to negotiate with, and huge amounts of data remain locked away in servers and spreadsheets. Here are three among many barriers to accessing useful intelligence:

1. Universities have different priorities and IP procedures — Around 90 percent of HEIs now have designated ‘entry points’ for businesses seeking to collaborate, and there will soon be an online brokerage tool to help firms find the right research support from across the UK’s universities. Yet there is still room for improvement, according to last year’s Dowling Review. Too much pressure is put on university technology transfer (UTT) offices to generate a quick return on intellectual property, rather than invest in long-term commercialisation partnerships. Universities have been known to encourage companies to license IP to other businesses at an early stage, rather than develop their own products over time. Another problem is the onerous contractual agreements that tech firms have to negotiate, for example when dealing with IP, indemnities and warranties. This is one reason why — as the Dowling Review points out — the cost of collaborating with universities appears to be higher in the UK than in comparable countries.

2. Data is underappreciated and often unintelligible — As noted above, central government has made great strides in opening up its datasets for commercial use, yet local government and private companies have not kept up. One problem is that some organisations, particularly SMEs in the private sector, underestimate the value of the data they create, whether that be administrative (e.g. point-of-sale receipts) or reference data (e.g. product bar codes). Organisations may also wish to withhold data because of genuine concerns about commercial confidentiality or user/client privacy. An Ipsos MORI poll found that 60 percent of people lack confidence in the abilities of companies and public data bodies to keep their data secure. Even when councils, public services and businesses are willing to share their data, it is not always presented in a timely manner or useable format.

3. Fears about aiding competitors can lead to secrecy and isolation — The most forward thinking corporates appreciate innovation is a long-term game, and that sharing knowledge with up and coming tech firms will yield benefits over time. Barclays, Rabobank, Intel and Microsoft all assist tech startups that could one day turn into competitors, but they realise that to ignore them would be to risk not bringing them on side and missing first refusal on their innovations. However, not all firms take such an enlightened stance. Some corporates demand that tech businesses sign elaborate non-disclosure agreements before they can meet for the first time. The same tendencies towards secrecy often exist between tech founders, with some entrepreneurs avoiding incubators, pitching sessions and meet-up groups for fear of inadvertently sharing their ideas with a potential competitor.

Case study inspiration

As stubborn as these barriers may appear, they are neither inevitable nor unmanageable. As the below case studies reveal, data can be opened up, secrecy can be subdued and the maze that is university procedures can be cut back and more easily navigated.

Action points

Inspired by these case studies and informed by our earlier analysis, we put forward several recommendations designed to open up knowledge assets in the region:

• Organise a ‘600 that Share’ movement — To make the most of corporate insights and intelligence, tech advocates in the North could encourage the region’s 600 very large businesses to pledge to do more in supporting their local tech community. The pledge should link to a manifesto of practical steps, such as sharing data or arranging secondments.
• Establish a ‘Founder of Founders’ award — To recognise community collaboration, a new Founder of Founders award could be given to business owners who do the most to support their fellow entrepreneurs. This could be embedded within an existing programme of prizes like the annual Northern Digital Awards, or be weaved into Tech North’s Founders’ Network.
• Pool the resources of university outreach teams — To benefit from economies of scale, the outreach teams of Northern universities should consider joining forces and offering a single unified offer to local tech businesses (and other firms). Inspiration can be taken from the SETSquared Partnership, which has set a gold standard for university business services.
• Consider a ‘what works’ review of tech business support — To better understand what tech businesses need in order to thrive, tech advocates in the North should consider undertaking a ‘what works’ review that harvests the opinions of founders from across the region. The aim would be to identify how existing business support can reduce common paint points in the entrepreneurial journey.

Next Steps

Picture the North’s Digital Powerhouse 10 years from now. Tech businesses have become woven into the fabric of public service delivery, in the process transforming teaching, healthcare and local government. Tech clusters have meshed with nearby industries, boosting innovation in sectors ranging from aerospace and media, through to logistics and finance. And universities and corporates have opened their doors to collaboration, channelling information, insights and data to fuel the work of local tech firms. Above all, the region has shrugged off any doubts that it has what it takes to compete on the global stage. It has a self-belief that attracts talent and investment the world over.

This is not a fantasy scenario. As our report shows, the North’s digital economy already has pockets of brilliance and is increasingly anchored in the surrounding community. But further progress will only be made with concerted effort on all sides — with greater action and fewer words, and robust insight and less reliance on instinct. It is true that much will be determined by the government’s decisions on education, infrastructure investment and spending patterns in public services. Yet it would be wrong for the North to resign itself to a course charted by others. With the right ideas and determination, the region’s tech clusters can harness the full breadth of the world-class assets at its disposal — including its rich network of private and public sector supply chains, universities, science parks, data stores, digital communities and cultural heritage.

Here is a reminder of our proposals, all of which will be explored in the coming months:

• Introduce Tech Taster vouchers — The introduction of vouchers should be considered as a way of allowing businesses to get a taste of what tech could do for them.
• Establish a Digital Powerhouse Contract Portal — A portal could be created that collates both private and public sector contracts in one place, establishing a Northern hub of commercial opportunities for tech companies.
• Champion the tech co-operative model — Tech co-operatives should be promoted in the North as a means of helping tech firms band together and achieve economies of scale.
• Kickstart new corporate-backed accelerators and hack days — Northern tech groups, together with Tech North, should consider identifying corporates that may be interested in backing accelerators and hack days specific to a subsector of the digital economy (eg FinTech and HealthTech).
• Make the North a testbed for experimental tech — Northern tech clusters should look at ways they could be proving grounds for experimental technologies (e.g. the use of robotics in social care or blockchain technology in the welfare system), enabling the North’s tech clusters to provide cutting edge solutions to a forward-thinking marketplace.
• Establish digital immersion events — Public service teams should consider organising events with nearby tech communities in order to share procurement knowledge and better understand local needs and strengths.
• Move towards ‘problem-based’ commissioning — Public sector commissioners should consider the benefits of problem-based commissioning, which does not define solutions from the outset.
• Open up data on KPIs and procurement results — Local authorities and public services should consider releasing their data on procurement history and key performance indicators (KPIs) so as to help tech communities understand the opportunities available.
• Create a ‘Procurement Powerhouse’ social enterprise — Northern entrepreneurs should consider creating a social enterprise to link public sector buyers with tech businesses in the region, providing a sustainable solution to matchmaking.
• Encourage the use of open source software — Partners in the North should champion the use of open source software to enable collaborative innovation, opening software markets up to more local competition.
• Organise a ‘600 that Share’ movement — The region’s 600 very large businesses could be encouraged to pledge to do more to support their local tech community.
• Establish a ‘Founder of Founders’ award — A Founder of Founders award could be given to business owners who do the most to support their fellow entrepreneurs.
• Pool the resources of university outreach teams — The outreach teams of Northern universities should consider joining forces to present a single unified offer to local tech businesses.
• Commission a ‘what works’ review of tech business support — A ‘what works’ review could be undertaken to better understand how the region’s business support offer might be improved for tech businesses.

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