The Impact of Covid-19 on business R&D and innovation

As we emerge from the UK’s third lockdown, many businesses have had to make significant changes to how they operate and how they interact with customers as a result of immediate impacts on their trading and revenue. In May 2020, during the first national lockdown, 18% of UK businesses had temporarily closed or paused trading. Of those still trading, 62% reported a decline in turnover.[1]

The Government has made it clear that research and innovation will be expected to form a significant part of our economic recovery as the nation seeks to find answers not just to the urgent health challenges but also recovery from significant economic disruption. Decisions made by business leaders in the months and years ahead will have a profound impact on the speed and shape of the UK’s recovery.

Research suggests that companies that innovate are more resilient in a crisis, more likely to expand into new markets during disruptions and more likely to be able to hold on to staff and grow in difficult trading conditions[2]. Therefore, business leaders will have difficult decisions ahead about whether to invest in R&D and innovation over other priorities.

To understand how the events of 2020/21 have impacted business’ innovation activities,  the National Centre for Universities and Business (NCUB) and the University Commercialisation and Innovation (UCI) Policy Evidence Unit at the University of Cambridge conducted two surveys, one of business leaders and one of university leaders. Our new report, entitled Innovation and Resilience in a Crisis: the Impact of Covid-19 on Business R&D, sets out the findings of a survey of business leaders, investigating specifically the impact of Covid-19 on businesses’ R&D and innovation activities and their collaborations with universities[3].

Key findings:

The findings show that during the first national lockdown:

• Even prior to the pandemic, businesses were already experiencing both positive and negative factors in the UK innovation system; 64% said their needs were not being fully met when it came to accessing sufficiently qualified labour and 62% of businesses reported unsuitable access to finance for R&D and innovation in the UK
• 81% of businesses reported delays or stoppages to research while 12% of businesses had to stop research activity altogether;
• Nearly three-quarters (72%) of businesses either extended, delayed or cancelled collaborative projects with universities;
• A quarter of business respondents noted significantly reduced demand for university collaborations; and 37% of businesses reported cancellations
• More than a quarter (28%) of businesses cited insufficient government funding to leverage university collaborations as a key reason for making changes to projects, activities and interactions with universities.
• Majority of businesses (56%) were not planning on increasing their internal R&D and innovation activities over the next year. Almost one fifth of businesses planned a decrease.

Looking forward: the challenges ahead

The nation’s response to the Covid-19 pandemic has demonstrated how important technology, R&D and innovation are to our society, our health and our economy. Looking forward, and with a likely global decline in business R&D investment, and funding for research already under pressure, we need to encourage innovation for the UK to emerge from this crisis stronger. In order to meet the challenges identified in the report, we need a healthy university and business R&D system that is able to partner to invest in research and create value through innovation.

Encouragingly, most businesses reported that they have chosen to delay, rather than cancel, their R&D and innovation activities so far. For how long this can continue before difficult decisions have to be made on reprioritising or reducing investments, is an important question. As we move into the 2021/22 financial year, and through the next stages of the Covid-19 pandemic, this will need to be monitored closely.

It should be noted however, that businesses were experiencing some challenges before the pandemic, particularly in relation to accessing sufficiently qualified labour and finance. Therefore, it is critical that the UK develops strategies that address not just the immediate effect of the pandemic but which also address longer term challenges such as the well-documented challenge of creating a system that makes it easier for businesses to develop and apply their outputs in the UK, without having to move locations.

As the Government further develops its R&D and innovation strategies and looks towards realising the ambitions set out within the R&D Roadmap and the new Economic Plan for Growth, it must further seek to understand the barriers that businesses are facing when conducting R&D and innovation activities here in the UK. This will be important to inform the design of effective policies to attract and retain these types of activities, and capture value from them, in the years ahead.

In our changing world, the UK’s research base is key to keeping the UK competitive in global markets and to meeting decarbonisation goals. Covid-19 has affected research and innovation activities, but it is precisely these activities that will be vitally important to our recovery.

[1] Office for National Statistics. (2020) Coronavirus and the impact on output in the UK economy: May 2020. Retrieved from https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandtheimpactonoutputintheukeconomy/may2020

[2] “Innovation in a crisis: Why it is more critical than ever”, McKinsey, 17 June 2020. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/innovation-in-a-crisis-why-it-is-more-critical-than-ever

[3] A parallel report The Effects of the Covid-19 Pandemic on the Ability of Universities to Contribute to Innovation (UCI and NCUB, 2021) looks at how Covid-19 has impacted universities’ ability to contribute to innovation.