Too many world-leading opportunities get exploited overseas because we can’t or won’t take the leap ourselves. In this context, it is interesting that the first pillar in the government’s green paper, Building our Industrial Strategy, focuses on investing in science and research. Following its release commentators suggested an innovation culture change is needed to secure economic gains.
We don’t lack creativity in this country. Where we fall behind is converting research into a commercially viable product which will deliver economic returns. This is due to our innovation culture.
Only this week PA published innovation research which questioned over 800 business leaders about their innovation practices and performance. We know that organisations are missing out on the potential of innovation to drive progress.
We need to start truly incentivising researchers and academics to push their ideas into the commercial realm, but remain cognisant of the innovation pitfalls, highlighted in the PA research.
Getting the funding system right
For good reasons, funders of research and technology are wary of tying funding too closely to measurable, pre-determined outcomes. It can restrict creativity and lead to target chasing. However, too often once funding is granted for a project, review meetings are treated as a formality, recycling the same information presented at the last review and not moving the idea towards successful commercialisation.
This is a challenge all innovators face and mastering it is a key differentiator identified in our research. Some 61 per cent of bosses of innovative firms believed they are good at measuring the value of innovation, compared with 47 per cent in the wider survey group.
Funding should encourage researchers and academics to think commercially, but we must recognise they are less motivated by profit than those in the private sector. They are driven by the rewards and recognition they get from furthering their work, which should be a consideration when it comes to funding the commercialisation of their ideas.
What is needed is a dual approach. Grant funding should be made available for exploratory and early stage research, but continued funding must be made contingent on impact. Further grants would thus be linked to the delivery of activities acknowledged as early stage indicators of successful commercialisation.
These could include developing commercial scale demonstrators and securing private sector investment or endorsements by recognised market makers. This will provide an incentive to push for innovations to be exposed to the market at a much earlier stage.
Changing our innovation culture so as to get to market quicker, and then iterate
There are also lessons to be learned from new methods in project management and software development. The traditional approach, known as waterfall, means you decide what to do, build it and then deliver it. This leads to long lead times and inflexible solutions. In contrast, the agile approaches now widely used prioritise getting the minimum viable product (MVP) into the market as quickly as possible and then continuing to develop it in response to how the market reacts.
In the most innovative firms we engage with, executives are ten per cent more likely to believe they were very good at this rapid deployment and customer testing.
In some ways researchers and academics are very agile; the direction of their work will often change completely as their findings evolve. This allows for true innovation. But when it comes to commercialisation of the ideas developed in universities there isn’t the support or legal mechanisms for researchers to take an agile approach to getting their MVP out into the market.
So we need to change our innovation culture when it comes to taking an idea from a proof of concept, as testing in a commercial environment requires the inventor to leave their university. This is a significant risk for the individual who abandons the safety of a university career and puts their reputation and financial security on the line. It is virtually inconceivable that anyone would release a product into the market before they are 100 per cent sure it is fully developed. So many ideas get stuck at the theoretical stage and end up being exploited overseas.
There is, however, another approach. The FCA created a regulatory sandbox model. This is a “safe space” where innovators in financial technology can test products or services in real market conditions without much risk. Regulatory issues, which may prohibit the innovation being deployed, are addressed by creating a temporary regulatory framework through wavers and non-action agreements with the authorities. Consumers are protected as they are informed that the product is being tested and is operating outside of the normal regulatory environment. It allows innovators to get ideas into the market before they are certain about the variables.
Universities’ commercialisation departments can emulate this approach and change our innovation culture. Universities could allow inventors and researchers to play in near real market conditions, reducing the risk of full commercialisation. This could be done by setting up an affiliated commercial organisation through which inventors could develop products by using a time bound licence for the use of the university’s intellectual property. Then, in collaboration with the relevant authorities, could take similar steps to adjust the regulatory framework and protect consumers.
Help innovators let go if they want to make their mark
The next factor that needs to be tackled is the commercial capability of the inventor. Often the person who developed the idea is too close to the innovation to be able to address the issues that are stopping it from scaling up, or they lack the commercial skills to make the business successful.
Many universities work well with inventors to help them understand the capabilities they may lack but more could be done to formalise this support. Large companies have been successfully using accelerators as a way of de-risking investment in startups for years. In fact, over a quarter of the innovation leaders we identify work frequently with accelerator programmes. These provide entrepreneurs with support and mentorship.
Universities can use similar mechanisms to develop the commercial capabilities of potential spin-outs. However, in contrast, the de-risking should focus on supporting inventors to take the role that best suits them and their invention and act as a matchmaker to bring in the commercial expertise and develop entrepreneurial capabilities. The primary focus to change our innovation culture is to make the spin-out investment ready. This should include using connections in the university to explore opportunities across supply chains.
It must also take a more active and critical role in developing the skills and capabilities missing from the venture. More than anything, it must be practical not theoretical using partners, alumni and mentors to bring inventor founders out of their academic comfort zone. This is supported by our research, which found 61 per cent of innovation leaders believe they are more successful when they source external expertise in their innovation processes, as opposed to only 52 per cent of their peer group.
Each of these steps play a critical role in cracking the commercialisation challenge. In that way we will be able to harness the UK’s undoubted creativity and unlock future economic opportunities we haven’t even imagined yet.
Khalil Souki is an economic development expert at PA Consulting.
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