Section 5 - Knowledge Exploitation and Application
5.1 Introduction
Repeated themes of earlier sections of this report - documented in detail in Chapter 3 - have been the relatively low level of R&D activity in Scottish firms, the concentration of R&D activity in externally-owned companies and low levels of connectivity between knowledge generating and applying organisations. These observations suggest two key questions. First, why is the level of business R&D low in Scotland, particularly in locally-owned firms? Secondly, how effective are current support measures in helping firms to overcome the barriers to undertaking R&D and innovation? Section 5.2 provides a summary of firms' responses to these questions drawing on a previous study for the Scottish Executive on the factors shaping firms' R&D decisions and a series of interviews conducted for this report. Section 5.3 considers the more specific issue of spin-outs and barriers to commercialisation from the Scottish universities. Section 5.4 reviews and illustrates the main drivers of innovation in Scottish firms. Verbatim material from our own interviews with Scottish firms is included in Annex 2.
5.2 R&D and Innovation in Scottish Firms
Chapter 3 provides a detailed comparative perspective on levels of R&D and innovation in Scottish firms compared to those in other UK and EU regions. This emphasises the concentration of R&D activity in high-tech sectors and among externally-owned manufacturing plants. A recent SE study investigated firms' reasons for undertaking R&D and innovation and the pros and cons of operating in Scotland.
What emerges is that Scottish firms' main motivation for undertaking R&D is to develop new products followed by adapting or improving existing products with the aim of increasing market share. Among firms undertaking R&D, the quality of innovative behaviour seems relatively high with 73 per cent of those companies undertaking R&D producing something that is new to the market rather than just new to the firm. This measure of the 'novelty' of R&D activity is seen even in traditional manufacturing companies with 58 per cent of innovation new to the market.
When asked about their views of Scotland as a location for R&D a balance emerged between issues related to peripherality and distance from main markets and the potential for links to research institutions and grant support. Multi-national plants, in particular, despite having above average levels of R&D investment in Scotland stressed a preference for a location closer to their company HQ. Difficulties in undertaking R&D in Scotland were related to; raising venture capital as tends to be a focus on firms in the South East; transport links to Europe and the US, and difficulties with recruitment of skilled personnel in areas outwith the Central Belt. In the oil and gas industry, locational factors were said to be important, and in bioscience too firms suggested difficulties in attracting suitable personnel. In the latter sector particular problems were associated with the lack of experienced staff in the industry, and what some firms considered unrealistic salary expectations on the part of newly qualified graduates and post-graduates.
More generally, however, factors limiting R&D and innovation activity tended to be market related - linked to risk, returns and opportunities rather than input availability. This suggests that the structural characteristics of the firm - sector, size, ownership, previous R&D experience - are the main determinants of levels of R&D activity as they determine the technological opportunities and the contextual and environmental effects. For example, staff in small firms related difficulties in keeping in touch with developing technologies and difficulties in creating an internal climate to support innovation. Other firms stressed what they perceived as the weakness of the culture of innovation and entrepreneurship in Scotland. Some firms related to this to the weakness of entrepreneurship and innovation in Scottish companies generally. Others focussed more on what they perceived as difficulties with aspects of the environment for innovation, particularly in terms of market size and weak local demand for innovative products and services.
A key issue is therefore the extent to which participation in the SIS can either mitigate the risks of R&D and innovation activity, or help firms to identify new potential opportunities. In terms of the boosting the rewards from R&D and innovation government support was seen by firms as an important encouragement for R&D and innovation, both through grants and tax incentives as well as loans. Specific schemes were remembered and had been important for some firms. One small company told us:
' SMART and SPUR have been good for us, and have given us real ability to punch above our weight. Even big companies find it hard to pick winners- these schemes allow small companies to have a portfolio of technologies - this type of incremental investment is very important in facilitating a firms growth rather than stagnation. Overall we have received good help from SMART / SPUR etc, and people from LEC and SE are usually very interested and supportive'.
Such comments were accompanied by a feeling that LEC staff were generally helpful if sometimes lacking in specific expertise. Firms stressed the importance of the LECs in providing guidance as the appropriateness of different support measures, help in developing linkages and practical support in achieving innovation objectives. The LECs ability to help was sometimes said to be limited by the attitude and openness of Scottish businesses themselves.
Less clear was any consistent view among firms as to the national objectives, role and focus of Scottish Enterprise. In some cases this related to uncertainty over the strategy or focus of Scottish Enterprise, in other cases the breadth of Scottish Enterprise's task was seen as too broad leading to a confusion of objectives. Doubts were also expressed about the co-ordination of support for innovation within the SIS, both in terms of the LECs and the role of university technology transfer offices. A minority of firms also highlighted what they saw as conflicts between the different support measures available for innovation.
In terms of identifying new possibilities for innovation, links with HEIs was seen as important, particularly by traditional manufacturers. However, the SE survey also made clear that in many cases there was:
'… only a weak link between single-site manufacturers and the universities. Business links with academia is an area where it appears there is market failure as there are companies expressing a desire to make links with universities to enable them to either start or increase their R&D capabilities but they do not know how to go about making such links. When links exist between universities and business it is clear this is mutually beneficial and that the level of R&D undertaken can increase. It is also clear that, from both the survey and the case studies, those companies without an existing link to a university found it difficult to establish one'.
This view was reemphasised by our company interviews, even among firms linked to incubators and science parks. In theory these firms should have ready access to their local HEI; in practice the 'value added' from a science park location was often said to be limited. It is important to acknowledge, however, that for some firms the development of a university link is not on the agenda. One firm indicated that:
'We have quite deliberately not engaged with any universities, we don't see the tangible benefit of doing this at the moment- we are a small firm focused on our own objectives. At the moment we are at full capacity with our own intellectual development, and the internal R&D that these ideas need. Of course, that doesn't mean this is something we will never do as things change'.
5.3 Start-ups and Spin-outs
Section 4.3 indicated that commercialisation and spin-out activity from Scottish HEIs and research institutes is at least on a par with UK and some international comparators. Our discussions with firms suggested strongly contrasting views about the strength of existing support for spin-out and start-ups in Scotland. Some firms had a strong positive view about Scottish Enterprise support for spin-outs etc. while others suggested the need for alternative approaches by SE to supporting new firms.
Key issues were seen as the need to provide more assistance with IP protection and early stage development of new products. A number of firms reflected on the difficulty of the spin-out process. Other firms emphasised difficulties with the control of IP, or situations where the university or the inventor was unwilling to release control of the enterprise. A key theme was the practical difficulty of drawing together individuals with technical knowledge and those with commercial expertise. Some firms stressed, for example, the tendency for academic inventors or to lack business or marketing expertise. One commonly suggested solution was trying to link those with new product ideas and business expertise - e.g. the use of 'surrogate' entrepreneurs.
5.4 Overview and Mapping
Our previous discussion and the comments of firms reported here stress the importance of inter-connectivity within the SIS for innovation. Links to the LECs, the HEIs and Science Parks are important external links between the knowledge application functions of the SIS and other elements of the system. These links between knowledge generation and knowledge application are discussed in more detail in Section 6. Section 7 deals with system governance and co-ordination.
Our view of linkages within the knowledge application function of the SIS is summarised in Figure 5.1 based on our informant interviews and our review of existing studies. In general, we see relatively little evidence that many locally-owned medium and low tech firms are very actively engaged with other local companies in their innovation activity. This is suggested both by some of the quotes referenced earlier and data from the Community Innovation Survey. Links between locally-owned high-tech firms, externally-owned firms in Scotland and spin-outs are stronger, with each group also having relatively strong link to externally-owned firms. There are of course links from each group of firms to other organisations within the SIS ( e.g.LECS, HEIs) but these are discussed in subsequent sections. We have included the Scottish Enterprise cluster/industry groups in Figure 5.1, however, to reflect their role in strengthening local links and networks.
