British firms are not just cutting the amount they spend on innovation. They are also failing to measure their innovation performance.
If they did, they might be less inclined to cut back on innovation spending which the latest Confederation of British Industry survey found had declined in 1997 for the third consecutive year because companies also reported that innovations led quickly to improved business performance.
The CBI survey found a mixed bag of measures are used to gauge the effectiveness of innovation. The proportion of sales from new products was used as a measure by 64% of manufacturers, while 52% measured the savings from cost cutting. Only a third measured the return on research and development or carried out any kind of benchmarking.
‘The most innovative companies set themselves demanding targets for the proportion of sales to be achieved from new products,’ says Dr Philip Wright, senior policy adviser in the CBI Technology Group.
Some 70% of respondents said innovation had fed through to gains in profits in less than three years. A similar number said the same about gains in market share and new markets. Even more pointed to gains in sales revenue and new customers.
The list of constraints on innovation was topped by customers themselves, followed by a lack of promising ideas, competition, and the availability and cost of finance.
The perception of a lack of ideas worth pursuing is perhaps most worrying. Either the UK is faltering in an area where it used to excel or, equally worrying, bosses are not aware of ideas in their organisation or encouraging people to come forward with them.
The CBI’s definition of innovation used in the survey is drawn widely and includes not only the introduction of new or changed products to market, but the use of new or changed processes of production.
This year, for the first time, the Centre for Research on Innovation and Competition at the University of Manchester and Umist also analysed the figures. It identified four styles of innovation: the exploitation of novel technology; process innovation; supply chain integration; and a broad-based innovation strategy.
The findings revealed that foreign firms operating in the UK were more likely to be technological innovators. UK firms with an international presence tended to concentrate on process innovation and supply chain management. But UK firms operating only in the domestic market showed a negative attitude to innovation in general.
‘International firms will be confronted with the need to be more innovative through working in overseas markets,’ says Wright. ‘They have a different culture and understand the need to try new ideas.’
In its survey report, the CBI identified this factor as ‘perhaps of most concern’.
It has long been known that only a small percentage of UK firms are truly world-class innovators. This survey, says Wright, indicates that there is still a long way to go.
So what can be done? The CBI notes that goverment incentives and tax concessions were rated the least significant drivers of innovation, and calls instead for ‘a co-ordinated approach to creating an environment which creates a positive attitude to innovation’. This should include ‘focusing on the commercial advantage to be gained’.
A vehicle to do this is almost ready to roll. The CBI proposal for a business-led, government-backed initiative to spread best practice, which emerged from the Fit for the Future campaign, is being prepared for an autumn launch and should, says the CBI, ‘provide an effective mechanism to deliver this’.