Innovation is the key

Innovation is critical to business success according to 93 per cent of

companies who dedicate an average of 12 per cent of their turnover to innovation activities - a major new

reveals this week.

But Government policy is failing to support large swathes of innovation activity because it is focusing its attention almost exclusively on research and development (R&D) and supporting science and technology research at the expense of other areas of business innovation.

In the survey, only 41 per cent of companies agree that R&D is the best indicator of innovation activity and only a fifth agree that all innovation is dependent on technology developments.

The DTI's R&D scoreboard of the top 750 UK companies equates R&D spend to approximately two per cent of sales on R&D, which is around £17 billion. This survey suggests that companies are actually spending around six times that amount on innovation-related activities.

CBI Director-General, Sir Digby Jones said: "Government expresses strong support for business innovation but most of it is focused at the R&D technology end. Service sector innovation may be more difficult to pin down but as services now account for 70 per cent of the UK economy, Government has got to put this sector firmly on its innovation policy radar. As well as the DTI's R&D Scoreboard, there should be an 'Innovation Scoreboard' to reflect the wide spread of activity that companies undertake."

According to the survey, 94 per cent of companies are funding their innovation work through profits, with a quarter of firms using government grants and 17 per cent using banks. Fifty per cent of firms said they find it very or fairly hard to access external finance. Any further squeeze on company profits - for example from additional tax burdens - would reduce the ability of companies to finance innovation work.

Sir Digby Jones continued: "Government has an important influence on innovation through legislation and other initiatives but can make the greatest difference through its procurement.

"Government spending power is enormous, £125 billion a year. The message from this survey is that government should engage with companies in a more informed way, it should buy more innovative goods and services and get more closely involved with companies at an earlier stage in the procurement process.

"Clever procurement by governments can enhance productivity and stimulate innovation as demonstrated by some of our best continental rivals."

A large number of companies believe that current government procurement practices hinder business innovation. Sixty-nine per cent agree that government procurement skills are a major problem and 79 per cent disagree that government supports innovation by acting as an early adopter of new ideas. The survey also highlights the problem of poor specification.

Companies were asked to rate the importance of nine areas that government could improve. The top three priorities were: gearing the education system to produce more and better science graduates, widening the R&D tax credit to cover other aspects of innovation and increasing the level at which the R&D tax credit is set.

Of ten factors that companies were asked to rate for adding value to innovation in their company, the most critical were understanding the market and having a workforce that is able to identify, develop and adopt new ideas. Fifty six per cent agreed that innovation is always market driven.