Scottish Government

Section 6 - Knowledge Transfer and Diffusion

6.1 Introduction

In this section we describe the organisations involved in technology transfer and diffusion within the SIS. This element of UK innovation systems has often been argued to be particularly weak compared to that of more strongly developed innovation systems ¹⁵. In the German system, for example, the positive knowledge transfer role of the Fraunhofer Institutes has been widely noted mediating between university researchers and small to medium sized companies ¹⁶.

In the SIS, technology transfer and knowledge diffusion have been promoted through a number of policy initiatives and activities. First, the development of cluster and industry groups is now well established, although developments in this area continue ( e.g. the current development of the medical products and research cluster in Inverness). Second, business incubation is a well established element of the Scottish industrial development scene, as are science parks. Third, and more recent are the Intermediary Technology Institutes, and these are a key focus of this section.

6.2 Cluster and Industry Groups

Cluster and industry groups have been an established element of the Scottish industrial development scene for some years now, with dedicated Scottish Enterprise teams responsible for cluster co-ordination and support. This type of initiative has a potentially significant role to play in the development of an effective innovation system, by promoting effective innovation networks and 'association', by strengthening local supply chains and hence local spillovers, and by encouraging developmental synergies between local firms. Enhanced knowledge generation may therefore be encouraged through joint ventures or partnerships and enhanced knowledge diffusion or sharing may be stimulated by strengthened networks or inter-firm linkages.

The Cluster initiative is broadly based covering most of the main sectors in Scotland, with the aim of identifying and developing synergies and strengthening and developing linkages. Cluster maps have been developed by some teams highlighting existing and aspirational supply and knowledge linkages. These are useful in providing an illustration at industry level of some of the points made earlier about connectivity within the SIS, particularly in terms of university-industry links.

The food team for example, based in Aberdeen developed linkage maps for 1999/2000. These are included here as Figures 6.1 and 6.2. Key points suggested by the 1999 situation were:

Figure 6.1: Scotland's Food and Drink Cluster 1999

Figure 6.2: Scotland's Food and Drink Cluster 2010

• The fragmentation of the Scottish food industry and the weakness of many links between organisations within the local food sector
• the existence of strengths within the sector - in value added processing, in the universities, in the whisky industry - but the lack of connectivity between these areas of strength and other weaker elements of the system.
• Generally low levels of investment in R&D and innovation and low levels of collaboration and cooperation

This illustrates some of the points made in Section 3 about the weakness of the links between the Scottish universities and the largely indigenously owned food sector, something which the cluster team hoped to overcome by 2010.

Developed at a similar time, a cluster map developed by the Optoelectronics team highlighted a slightly different picture (Figure 6.3). This pointed to the positive role of Scottish universities in contributing to device design and display technology, and strong process links between universities and system integrators based in Scotland ( e.g. Cisco, Motorola, Polaroid). These links were identified as of 'medium' strength by the cluster team, and were again identified as a focus for development. Again this reinforces the impression given in Section 4 with the universities more strongly linked to local, externally-owned high-tech firms rather than smaller indigenous companies.

Figure 6.3: Scotland's Optoelectronics Cluster - 2000

6.3 The Intermediary Technology Institutes

The Intermediary Technology Institutes ( ITIs) were announced in 2003 by Scottish Enterprise. Their objective is to identify emerging global market opportunities in Life Sciences, Information and Communication Technologies ( ICT), and Energy, and the technology platforms that will enable their exploitation. Research may then be commissioned - either from Scottish universities or elsewhere - to enable Scotland to take advantage of new market opportunities. The sectors targeted by the ITIs are recognised as being among Scotland's strongest in terms of global competitiveness:

• In Life Sciences, transgenics, stem cells and cancer treatments are clear comparative strengths.
• In ICT, Scotland has a strong software knowledge-base, reflected in the earlier initiative to network this to production of leading Large Scale Integration chip-design mediated by the Alba Centre. More recently, Scotland's mobile telephony content industry has shown global competitiveness, notably in computer games software engineering.
• In energy, not only the oil industry but in energy conservation and alternative energy sources.

Each ITI has a budget of £15 million per year for which an annual Operational Plan is produced within the framework of a rolling three-year Strategic Plan. Each ITI has a Board of Directors and they have a joint Executive Committee of the three ITIs plus the Chief Executive Officer (Operations). Reporting to Scottish Enterprise is thus embedded in these structures, with the main interface person being the Board Chairman, although links also exist with key contacts within the Scottish Enterprise managerial structure as appropriate. Thus the ITIs are arm's length bodies, funded by Scottish Enterprise, but with a high degree of independence.

The intended role of the ITIs within the SIS is integrative - linking together important sections of the SIS which have hitherto been perceived as rather disconnected. Three specific kinds of disconnection which the ITIs are addressing are identifiable.

• First, having identified potential market opportunities the ITIs are seen as having a potential role in enabling innovative personnel, mainly in universities, to take inventions from the laboratory bench to the pre-commercialisation phase. This function will complement other initiatives such as the 'Proof of Concept' fund and the 'Co-investment Fund'.
• Second, the ITIs are also seen as having a role in extending the scope of university research and commercialisation activity towards new market-opportunities.
• Third, within their industries the ITIs are also seen as providing commercially relevant support services, overcoming potential rigidities or inadequacies in more traditional innovation support measures.

The manner in which these activities are being pursued differs between the ITIs, but some common strategic principles can be identified. First, each of the ITIs is adopting a focus on 'platform technologies' which have some qualities of 'ubiquity', i.e. they are likely to be pervasive in their impact rather than being confined to a specific sector. In ICT, for example, broadband wireless technologies , content creation tools, human-computer interfaces, and networked sensor technologies all have wide potential application ¹⁷. Second, the ITIs have adopted an explicit approach to cluster-building in their areas of influence, reinforcing Scottish Enterprise's longstanding cluster approach. As indicated earlier, the motivation is straightforward - to intervene to enable businesses to gain from complementarities, collaborations and 'knowledge spillovers' especially where related firms operate in geographical proximity. Third,

Finally, by providing a new focus for networking within the SIS, the ITIs are seeking to overcome barriers to connectivity arising from the existence of established 'communities of practice.' This objective is being pursued through two main routes: formally, by the development of membership events including universities, firms and individuals; and, secondly - and more informally - through one-to-one meetings with key actors in the 'system' such as Deans of University Schools, investors, anchor firms to create trust, reputation and communication channels among innovation constituencies.

Despite their recent development, the ITIs are already performing valuable roles in the spheres in which they operate - new connections are being made and alternative development models and processes are being explored. What is clear, however, is that the development through the ITIs of sectoral or industry groupings (clusters) with global status is likely to be a generational process.

6.4 Business Incubation¹⁸

At the time of the most recent Scottish Enterprise review of incubation activity in Scotland (2001) there were 57 incubator facilities, focussing primarily on the development of technology-based companies with high growth potential ¹⁹. These incubators have a potentially important role in supporting the development of such high-tech firms, and also in encouraging networking between start-up companies. Incubators may also be seen as a property-based initiative in less developed areas to try and stimulate start-up and small business development. The majority of incubators in Scotland are sector specific: 32% in the software sector; 25% in the biotechnology/bio-medical/healthcare sector and 19% are technology-related. Somewhat surprisingly, however, only around a third of all business incubators in Scotland are linked to (one or more) of the universities, although each of the universities has some incubator link. Some - like those in Glasgow and Aberdeen - are based on science parks, others are more stand alone institutions.

Development of the incubator network has been actively supported by Scottish Enterprise with expenditure of £17.9m from 1997-2001 (Table 6.1). Subsequent to their development, the SE review suggested that Scottish Enterprise involvement was generally less direct. In certain specific cases, however, there was close integration between the SEN and incubator management teams ( e.g. Software, biotechnology).

The diversity of the rationale, objectives and range of activities of Scottish incubators have been emphasised. 'Many projects have been developed in isolation and failed to integrate economic development objectives; many have become property projects driven by occupancy levels and rental income rather than strategic economic objectives or business needs'. Levels of business support offered also vary widely from 'low' to more than 60% of executives' dedicated effort.

Table 6.1: SE Funding for Incubation Activity, 1997 to March 2001

This diversity means that it is probably inappropriate to discuss incubation in a "national" context. 'There is no national approach to incubation, rather there is an agglomeration of local approaches. The approach across the network is largely unstructured and fragmented with no apparent common direction or cohesion'. What is important, however, is that the incubation function has an established place in the SIS, playing an important support role in the commercialisation of university research, supporting spin-out from established companies and, in more rural areas, acting as a focus for the delivery of business support services.

6.5 Discussion and Mapping

Through the cluster initiatives, support for incubation and science parks, and most recently the ITIs, significant efforts have been made by Scottish Enterprise and its partners to develop linkages and networks within the SIS (Figure 6.1). Scottish Executive schemes such as SCORE and SEEKIT have also been significant in this respect, although our view is that the overall system effect of these measures has been relatively weak due to the small proportion of firms involved.

Despite these endeavours, our discussions with key informants, and our review of existing studies, suggest continuing doubts about the level of horizontal connectivity between Scottish firms, and links between smaller indigenous firms and the universities. Absorptive capacity - and the low priority given by many smaller locally-owned firms to technological development - may help to explain the low level of horizontal connectivity; similar factors together with a mismatch between the technological focus of the universities and the needs of local companies may be influencing the weakness of university-industry links.

The ITIs clearly represent a major new initiative in this area, and are an imaginative and innovative intervention with the potential to have a substantial impact on innovation levels in Scotland. Our view is that at present, however, links remain relatively weak (Figure 6.1). Key points which may contribute to the future success of the ITIs are:

1. Through the ITIs, the implementation of innovation policy is now, for the three fields in question, in the hands of experts intimate with the dynamics of specific global markets and inclined towards future thinking rather than extrapolating the past.
2. Second, the development of the ITIs suggest a welcome awareness of a systemic approach to policy, with a focus on the development of system competencies or 'platform' technologies rather than a focus on supporting specific innovation projects.
3. Third, the ITIs suggest that there is recognition that with outsourcing to China, India and elsewhere now encompassing R&D, Scotland needs further to re-build its efforts to become a research industry location, selling advanced solutions to global clients all over the world. For this to happen, 'knowledge entrepreneurship' capabilities require nurturing across the board.

We therefore believe that the ITIs form a useful bridgehead to the future with the potential to develop new innovative and economic strengths in elements of the SIS. In our view they will do relatively little, however, to integrate the Scottish university sector and smaller indigenous firms across the range of sectors. This disconnect is therefore likely to remain a significant element of the SIS without some more specific policy attention. This is discussed in more detail in Section 8.