Value capture and complementary capabilities
There is an often repeated story about UK innovation that goes something like this.
The UK is full of brilliant academics. It has some of the brightest minds, producing some of the best ideas, in the greatest universities in the world. The UK has a good-to-mixed record of creating spinouts from these ideas, due to a mature innovation ecosystem and a set of institutional norms like IP and contracts. The problem is that even where ideas can spin-out they cannot scale up due to lack of access to finance, skills, or markets.
It is a cogent analysis that has been backed by the likes of Mariana Mazzucato and the House of Lords Communications and Digital Committee. This model prizes linearity. This model of innovation assumes there is a straight line between idea, institution, and the market. Interventions to improve innovation have therefore also followed this path. Either trying to improve the quality of ideas, or more commonly, improving the quality of intermediary institutions like universities, research councils, and other industrial bodies.
The success of innovative companies can also be tied to this train. Usually, this is measured on how much investment a company can bring in, or how much a business is sold for once it reaches natural maturation. Idea is made, company is born, company is sold (or sometimes company fails).
Models and misses
This model is helpful because it maintains coherence between idea, creation, and company, idea, mediator, and marketer, and idea, scale, and sale. What the model neglects is that the creation of innovative companies does not happen in a vacuum. Their success is often caused by conditions outside of the control of any one institution and their benefits are felt well beyond the direct beneficiaries of a business sale.
It is not that focussing on scaling up companies is the wrong approach but it is limited. A new report by Cambridge Industrial Innovation Policy, prepared for the Department for Business, Innovation, Science and Trade, takes a different approach to the UK’s industrial innovation system. Its central thesis is that the weakness in the UK’s innovation system is not one of “linear translation”, as set out above, but one where “industrial competitiveness also depends on production capability, suppliers, skills, finance, infrastructure, industrial users, and demand developing together in a coordinated way.”
The report proposes that the linear view of innovation detracts from the system-wide needs of an innovation ecosystem. It would be possible to have excellent universities, great spin-out support, and mature markets, but without adequate production capabilities, suppliers, skills, or other capabilities, the potential of any company can only ever be partially realised. In short, it requires a systems approach.
System time
A better systems approach would mean looking beyond the linear relationship and beyond universities. It also requires more coordination of existing assets.
The report is particularly clear that there is insufficient focus on value capture within UK innovation policy. This is the process through which the value of ideas that are created in the UK remains within the UK. This value can be monetary – but it can also be new skills, capabilities, productions, or technologies. The UK could produce a range of profitable and innovative firms but it would do little for the national wealth if their success was not captured in some way within the UK. It is an obvious argument but one which is overlooked if we value firms purely on their profitability or sale price.
There are lots of mechanisms to capture value through contracts, patents, and IP, but there is also institutional value capture in the form of research and technology organisations, catapults, and finance bodies. They produce shared capabilities, like facilities, where individual firms would not. In providing access to their capabilities they create and can capture new value and in turn recycle it back into the system. These bodies then become not only about the translation of an idea but the capture of value of those ideas.
The forever challenge is that while there are good ideas and good firms that can make use of them the innovation system is too diffuse. There are too few incentives to build systems capabilities and too strong incentives to move value creation out of the UK. It remains to be seen how much BIST will be able to act on the report, but it raises an obvious question for the wider innovation economy. If capturing the value of innovation is so difficult, and the institutions exist to capture it, why can the government not mandate them to work more closely together?