Matching the intensity of university R&D: new challenges for the Scottish economy

By Alan Hughes, Professor of Innovation, Imperial College Business School London, and Director Emeritus, Centre for Business Research, University of Cambridge

In 2014, the NCUB published a report entitled Growing Value: Business-University Collaboration for the 21st Century.

This was the result of a major two and a half year long enquiry by the NCUB and the Centre for Business Research at Cambridge University into the scale and nature of R&D and other innovation-related expenditure in the UK. It was concerned in particular with the relative importance of university-based R&D and business R&D and the potential links between them.

That project began with a comprehensive analysis of UK R&D. This laid a framework within which a subsequent set of detailed case studies of university-industry links and the role of R&D and innovation could be assessed by in-depth qualitative interviews.

The Growing Value Scotland Task Force has followed a similar two stage methodology. The first fruits of this has been recently published in Capability, Culture and Change: Growing the Value of R&D in Scotland. This is the most detailed and careful analysis to date of the pattern, nature and scale of R&D and innovation activity in Scotland set within an international comparative context.

The original Growing Value study highlighted a number of significant features of the UK economy as a whole. These posed particular problems and raised particular opportunities for advancing university-industry collaboration and the overall effectiveness of R&D and related innovation expenditures. The key findings of the analysis were that, if overall R&D expenditure is broken down into those components carried out by businesses on the one hand and universities on the other, there is a mismatch in the extent to which trends in these have developed over time. In particular, the scale of business R&D in the UK relative to GDP is relatively low by international standards and has not kept pace with trends in R&D intensity in the UK’s major rivals. On the other hand, until the financial crisis of 2007-2008, university-based R&D expenditures were relatively buoyant and were associated with an exceptionally high international performance in academic outputs for the UK in comparison to major international business rivals.

A number of features also emerged, however, which could potentially inhibit the extent to which the excellence of the UK science base could be translated into commercial success. These were, first of all, the relatively high dependence of the UK on inward international funding of the UK R&D effort and the extent to which the UK business R&D effort itself is in the hands of overseas controlled multinationals operating in the UK. Secondly, the business R&D effort itself was heavily concentrated in the hands of a small number of major R&D investors and the vast mass of independently owned smaller businesses accounted for a tiny proportion of overall R&D expenditure (less than 4%). A similar concentration of the R&D effort in a small number of leading research-based universities posed, therefore, particular policy challenges in terms of ensuring that the highly concentrated R&D effort remained capable of generating commercial value and value added in the UK.

In this context, the attraction of the UK science base in terms of academic excellence is a vital asset in which funding would need to be maintained or increased. In addition, to the extent that economic growth needs to be more widely spread across businesses, major efforts are required to understand why small businesses are relatively less likely to do R&D and to play an important role in university-industry collaboration

The Growing Value Scotland Task Force is following the same methodology and the first ground clearing statistical analysis in Capability, Culture and Change: Growing the Value of R&D in Scotland is to be warmly greeted. It shows that the Scottish university R&D effort is, if anything, higher than that in the UK in relation to Scotland’s population or gross value added, whilst business R&D is relatively worse. This, therefore, accentuates the picture observed for the UK as a whole. The analysis also shows that Scotland is relatively lacking in the kind of large multinational R&D-focused investments which are associated with innovation performance in the UK. The position of smaller firms is also weaker in Scotland in terms of business-university collaboration.

A distinctive feature of the picture which emerges in Scotland is that when the pattern of innovation-related expenditures is broken down, the balance between what the report terms ‘traditional R&D’ (R&D expenditures directly on the creation of new knowledge) is relatively small compared to the amount spent on what the report terms ‘narrow R&D’ (which relates to supporting investments further down the value chain such as design and the purchase of capital equipment).

There is therefore a two-fold challenge for the Scottish economy. First of all, raising the level of R&D intensity and secondly, matching it to the capability of Scottish firms to engage in activities further downstream to harness value added for the Scottish economy. Understanding the processes behind these broad statistical patterns is an essential second stage. This second stage will enable the fullest picture to be presented of the challenges and opportunities facing Scotland policy in enhancing value based on links between its excellent university sector and its business sector.