Section 8 - Final Remarks
8.1 Introduction
In this section we make some final remarks relating to the 'systemic' nature of innovation in Scotland, as well as system strengths and weaknesses. Key policy challenges are highlighted as part of the discussion of system limitations.
8.2 Is there a Scottish Innovation System?
Section 2 identified three necessary conditions for the existence of an innovation system: coherence, unified function, and boundedness. Within limits, the SIS can be said to exhibit all three characteristics.
Coherence
There is evidence of an array of organisations with common development trajectories, feedback loops and complementary competences between agents. This is most evident in the activities of the Scottish Executive and Scottish Enterprise, and the attempts which have been made to develop institutions which link the knowledge generation and knowledge exploiting elements of the system e.g.ITIs. There are, however, limits to the degree of coherence, notably in the lack of connection between the HEIs and research institutes and the indigenous SME sector. This leads to a sense of 'imbalance' within the system, and a need for some agenda re-alignment if greater coherence is to be achieved.
Unified Function
The extent to which there are identifiable aims and objectives to which all parts of the system contribute is mixed. Clearly policy documents such as A Smart Successful Scotland and A Science Strategy for Scotland provide, for the first time, a set of objectives for the SIS and beyond. It is less clear, however, that all parts of the system recognise and accept all these objectives. Again we feel here that a more integrated governance structure - between industrial development and higher education funding - might be helpful. This is discussed in more detail below.
Bounded
Although the SIS is less evidently bounded than, say, that of the UK as a whole, it clearly is possible to determine geographical, institutional and to some extent sectoral boundaries of the system. However, the boundaries of the SIS are probably narrower than those of Scotland as a country; for example, it is clear that there are geographical areas of Scotland, notably the Highlands and Islands and perhaps the Borders and Dumfries & Galloway, which are effectively excluded from the system. It is also important to recognise that the 'unboundedness' or openness of the SIS is also part of its strength, with many HEIs and larger firms part of strong international networks.
Having decided that the SIS does indeed exhibit the characteristics of an innovation system, the next stage is to identify the strengths and weaknesses of the system. We discuss this in two sections related to system strengths and weaknesses.
8.3 Strengths of the SIS
We see clear strengths in the system. The knowledge generation capacity of the system is high with some key areas of strength. The commercialisation activities of the universities are effective and we see no evidence of any unwillingness to explore alternative avenues for commercialisation on the part of the universities. Scotland's record on spin-outs and commercialisation is well up to par.
In our discussions the universities saw their mission as very clear - to be internationally recognised centres for research. This was generally seen to have little in common with any very direct mission to contribute to the Scottish economy. Where such positive contributions arose naturally the universities were willing to engage in commercialisation, but different - non-economic - agendas were shaping university strategy and investment decisions. Essentially similar comments could be made relating to the research institutes.
System governance is complex given the region-state status of Scotland and the need to try and ensure consistency between local policy actions and those of national and supra-national actors. During our contacts views varied markedly on the robustness and effectiveness of the current system with widely varying opinions about the impact of Scottish Enterprise's dominance of the policy agenda. Some viewed this as a system strength - others as blocking innovation and change within the system. What is clear is that there is a general recognition of the centrality and importance of Scottish Enterprise.
Policy innovation within the system is relatively strong. For example, the ITIs represent a major policy initiative both in terms of investment and prestige and although it is early days show some promise of making an effective contribution. They may also play a useful 'flagship' role, championing innovation within the Scottish system.
We have not been able to consider this in great detail, but in general terms R&D support measures within the SIS are fairly comprehensive with the LECs having considerable autonomy - and using it - in support of local firms. Some confusion was evident over the number of different support measures available. LECs felt a key role was helping firms to identify the appropriate support measure. We feel there is too little emphasis in the support regime on encouraging partnership between firms and, despite SCORE and SEEKIT, on encouraging university-company interaction.
8.4 Weaknesses of the SIS
The pattern of R&D spending in the SIS is well known, with very low levels of R&D in firms and particularly in the majority of indigenously owned firms. This is clearly a weakness of the system and limits both the capacity of firms to develop their own knowledge bases and innovation but also no doubt hinders their ability to absorb external knowledge. This issue is exacerbated by what we feel are low levels of innovation networking between firms and between locally-owned firms and the universities. Indeed, there is evidence of an almost complete mismatch between the output of the research active HEIs and the absorptive capacity of SMEs, and between the requirements of SMEs and the ability or willingness of HEIs to help.
Differences in the level of investment in R&D and innovation between knowledge generating and knowledge exploiting organisations within the SIS lead to a sense of 'imbalance' - with a university sector reminiscent of a 'core' EU region and a corporate sector in keeping with Scotland's more 'peripheral' location. Differences in organisational agendas also lead to something of a disconnect between the university and (indigenous) corporate sectors.
The result is a lack of university-industry links and a mismatch between the type of knowledge being generated and demanded. Issues therefore arise on both sides. For the universities there is an issue in terms of more closely attuning their activities to the needs of the Scottish economy. For firms there is an issue of the priority they give to R&D and innovation investment, to upgrade their absorptive capacity and adopt a more 'open' stance to innovation links.
In terms of the HEIs, we feel it may be desirable to change the funding incentives to encourage agendas which more closely reflect the needs of the Scottish economy while preserving research excellence. This might include measures to encourage more applied research, and also to strengthen the emphasis on subject areas which can benefit local firms. A positive role model here is the Finnish organisation TEKES which combines the roles of research council and industrial development agency, providing substantial funding for collaborative research activity between HIEs and companies. It is also likely to be necessary to re-focus support for innovation at project level on collaborative or co-operative projects. SCORE, SEEKIT, and SHEFCs' Knowledge Transfer funding are a start in this area.
Geographical factors, and the location of higher education institutions, create a profound distinction between the situation of firms in the Central Belt and Tayside/Grampian regions of Scotland and companies in the Highlands and Islands and other rural areas. Proximity to universities and the potential for interaction differ markedly - to the extent that firms in the Highlands and Islands, Borders, and Dumfries and Galloway are in many ways excluded from any positive system dynamic at the moment. A partial exception to this may be firms in the medical cluster in Inverness. In the HIE area this may be at least partly addressed by the development of the UHI Millennium Institute.