The surveys have been answered and the results are in. The UK Innovation Survey collected data from over 14,000 businesses, who responded to a series of questions related to geography, business size, skills and factors both constraining and aiding innovation. The core finding from the 2016-18 headline report is a significant one – the number of businesses engaging in innovation activity has decreased from 2014-16 and is at its lowest level since in 2008-10.
The percentage of businesses engaging in all forms of innovation fell from 2014-16 to 2016-18, with the 13% drop in the number of businesses being process innovators being the greatest fall. This was true for large businesses and SMEs, both of which saw a decrease in the percentage of innovation active businesses. 49% of large businesses were innovation active in 2016-18 compared with 38% of SMEs. Large businesses were more likely to be engaged in all forms of innovation compared with SMEs. The percentage of innovation active businesses fell in every industry from 2014-16 to 2016-18 – with the largest percentage falls in ‘construction’ and ‘accommodation and food services’.
The percentage of innovation active businesses fell in every constituent country in the UK, with Scotland seeing the largest percentage drop from 2014-16 to 2016-18 (45% to 33%). As seen in the table below, the South East became the English region with the highest percentage of innovation active businesses, with 42% of businesses being innovation active in 2016-18, overtaking the South West, East of England, East Midlands, and West Midlands. This is despite the East of England being the region with the highest expenditure on research and development being performed by UK businesses, according to data from the Office for National Statistics (ONS). The same release shows that R&D expenditure in UK businesses has grown every year since 2011. However simultaneously, the percentage of innovation active businesses decreased in all regions between 2014-16 and 2016-18. The largest percentage point drop of 14 percentage points was in the East Midlands, the region that saw the greatest percentage increase in expenditure on R&D performed by businesses between 2017 and 2018. The results of the survey according to geography point to a stark contrast between the national increase in recent years in the level of expenditure on R&D performed by businesses as a whole and the decrease in the number of innovation active businesses.
Summarised in the table below, the percentage of innovation active businesses that reported having co-operation agreements fell from 58% in 2014-16 to 50% in 2016-18. All forms of co-operation agreements that included innovation active businesses fell in that time. Co-operation agreements with universities or other higher education institutions fell at the same time as interactions between higher education institutions and businesses grew in value, according the Higher Education Business and Community Interaction (HEBCI) Survey. Internal sources were rated as the most important source of innovation-related information, stated by 47% of innovation active businesses. Universities and higher education institutions were stated as a source by 5% of innovation active businesses, up from 4% in 2014-16.
Broader innovators were much more likely to have employees with science or engineering qualifications than non-innovators (15% compared with 5%) and were also more likely to have employees with qualifications in all other subjects (18% compared with 11%). Whether or not the percentages need to be higher in order to increase the level of innovation is an interesting question, and both skills shortages and specific upskilling have been reported in recent strategy documents at a local, regional and national level. However, the percentages of employees with science-related degrees increased slightly for both SMEs and large businesses from 2014-16, meaning that skills perhaps isn’t a factor for the overall percentage drop reported in the survey.
Why the fall?
The most common barriers to innovation activity were related to cost. 18-19% of businesses reported that the availability of finance and the cost of both finance and direct innovation were factors of high importance in 2016-18, compared to 14% in 2014-16. Other significant factors included the EU referendum (the factor with the most significant change since 2014-16, from 9% to 16%), the cost of finance and a lack of qualified personnel (up from 10% in 2014-16 to 15% in 2016-18). Additional data related to the different factors stated by businesses of different size, place and sector would help add granularity to these important findings and allow for a more tailored approach to addressing the drop in innovation activity.
Improving the quality of goods or services was the reason for innovation that was most commonly referenced by businesses, along with replacing outdated products or processes and meeting regulatory requirements. Along with meeting regulatory requirements, reducing environmental impact was a factor that saw a six-percentage point increase from 2014-16 to 2016-18, reiterating the importance to innovation active businesses to the government’s decarbonisation agenda.
More will become apparent when the data underlying the findings in the report are released in full later in the year. However, what is certain is the drop in innovation activity stated by businesses and the reasons businesses have stated as being behind it. Addressing the numerous factors and reasons stated in the report as barriers to innovation activity may be the first step towards seeking a greater number of innovation active businesses, and a subsequent increased level of innovation, in 2018-20.