John Denham - CBI/Qinetiq Service Sector Innovation Conference
Centrepoint - 1 July 2008
Introduction
I'm very pleased to be speaking here at today's conference. It offers an important and timely opportunity to take stock of where we are on the innovation agenda.
My department was formed a year ago - our first birthday was last Friday. The Prime Minister on his first day in office asked me to bring together three areas of work that are critical to the future success of this country. And critical to the chance of each person to share in its prosperity. Those three areas are unlocking the talent and ability of each individual, sustaining world-class research and scholarship and bringing those skills and that knowledge together with our policies to create innovative businesses and public services.
Towards the end of last year I spoke at the QinetiQ lecture in Worcester about the changing attitude towards innovation in Government and how my department is driving the change.
I said that in Britain today, we must establish and support the conditions in which knowledge and research become the principle drivers of our economy and we have to use this to shape the society in which we live.
Innovation Nation, our White Paper published in March, built on that speech and set out how we aim to achieve our vision. I think that the White Paper marked the start of an ambitious journey for Government and one that cannot succeed without the support of the people in this room.
Richard Lambert in his speech responding to Innovation Nation called it 'one big idea and a number of interesting little ones'. Richard, I would like to borrow your structure to talk about the big idea and then expand on a few of the more specific points.
We already have a world-class research base that we all agree is fundamental to the economy.
However, we recognise - as you do - that we cannot just invest in research and science and think we've done enough to promote innovation. The innovation process does not begin and end with scientific or technological discovery and its translation into practical uses.
Or as Richard Lambert said, if I may quote him again, the Government recognises it cannot 'pour lots of public and private funding into the science budget at one end of the pipeline, and lots of whizzy new products and services will come tumbling out the other'.
Research and Development is important but it is not the whole story - our interest in innovation and its exploitation goes much wider than that. My Department is instilling a much broader conception of what innovation is, where and how it happens and how Government can champion it.
The White Paper signalled the new direction we want to take in creating the right infrastructure to allow innovation to flourish across every area of the economy including our public services too. Innovation is as important to the delivery of the welfare state as it is to industries such as manufacturing, retail or the creative economy.
Yesterday Lord Darzi recognised published his report on the future of the health service which celebrated 60 years of a successful NHS and said that we should focus on facilitating innovation in order to make a success of the NHS over the next 60 years.
In Innovation Nation we recognise, that innovation is not synonymous with invention - it can be the appropriation of smart ideas and good practice. Nowhere I think is this truer than in the services sector, which provides three quarters of UK output but is not largely driven by traditional R&D.
So the challenge of innovation in the service sector does not correspond to the old-fashioned traditional definition of innovation.
Equally, there are some big challenges in the world that are unprecedented but which urgently require innovative solutions. Like an ageing population, global warming and sustainable development.
We announced last week that we expect some £100 billion will be spent on renewable energy over the next twelve years. It's important to maximise the benefit of this money to provide innovative and sustainable solutions. And it's important that British business and British people benefit from the 160,000 new 'green collar jobs' and the prosperity that they'll create.
I highlight this to show that where Government is conscious of not only removing barriers to innovation but instead creating the certainty that facilitates new markets and ground-breaking solutions.
This shows that regulation can help or hinder innovation by setting stretching standards for new technologies or alternatively if we are doing it wrong, constricting the freedom to innovate. If the UK is to become an Innovation Nation, it must complement the supply-side innovation measures with demand-side policies.
To ensure that we can achieve the aspirations we have set out, we must create a world class innovation ecosystem across the economy.
Services Sector
As you have already heard today, the service sector as a whole is a strong performer in global markets and it's essential to the UK's economic future. It accounts for: 80% of GDP; 75% of Gross Added Value; and a quarter of all UK exports - worth some £75 billion last year.
The sector has increased in value by 170% over a decade. Undoubtedly innovation has been at the heart of this success.
There are many examples - and we've heard some this morning - of innovative good practice in the service sector from online retailing to low cost air travel that have a whole-economy impact.
For example, services contribute business processes, logistics, and IT to the manufacturing sector and contribute in that way to continued success of manufacturing itself.
So today the service sector, together with manufacturing, relies on innovation in the way that it works. And its because we have been radically rethinking the Government's approach to innovation, that I'm pleased to speak here today.
CBI/Qinetiq report
I would like to continue by welcoming the QinetiQ/CBI report on innovation in the service sector. It does of course acknowledge that only companies with active champions for innovation which invest for the long term in skills, new processes and new technology are likely to succeed over the long term.
The report highlights the importance of increasing innovation-related skills in the UK; adopting a flexible approach to protecting intellectual property, improving the infrastructure that supports commercial innovation; and building capacity for innovation across the public sector.
Of course, one of the most important messages from your study today is that much of the responsibility for developing innovative companies lies with the businesses themselves.
I think we in Government should understand where we can make a difference and as importantly perhaps, where we cannot. As I've remarked before I have often wondered just how much more innovative Tesco might have been if DIUS had existed 10 years ago.
However, the ability for all sectors and businesses to innovate will still be influenced in many ways by what Government does. Our responsibility is to ensure that we are doing all that we can to foster the best conditions in which innovation can happen.
So when we look at the role of Government and how we can best achieve this, we understand and recognise the key areas that you describe in your report today:
Around public procurement
Around regulation, and
Around skills and knowledge
Procurement
So let me start with what Richard described as the big idea in Innovation Nation; the use of the Government's £150 billion procurement budget for products and services.
With this, we must set an example of how to use procurement in the public sector to leverage innovation and skills in the private sector.
Government procurement can pull innovative products and services through from the UK economy in areas such as defence, health or the environment.
Our procurement policy needs to be twofold - what Government procures should be innovative and we should be innovative in the way that we procure.
To do this we need to develop capacity in Government and to change the way we work. We will need to 'hard wire' this into the system through for example, Innovation Procurement Plans for each Government Department and through the Annual Innovation Report that DIUS will lead on in the Autumn.
Innovation Procurement Plans (IPPs) will create a framework for using procurement to drive innovation, and the strategic engagement of potential suppliers by the public sector. We will produce guidance for government departments on IPPs by the Autumn, in parallel with one for our own department.
DIUS's role as the champion and the intellectual lead for this work will be demonstrated in the Annual Innovation Report. Following Lord Sainsbury's recommendation, DIUS will bring together departmental procurement plans into one place so that we can assess our progress overall.
In a small way in our own procurement policy we are taking steps to drive innovation.
For example, my department is investing £2.3bn in improving facilities for Further Education colleges. It will be the case that all contractors bidding for this work must demonstrate two things.
They must make sure that the new buildings are constructed to the highest environmental standards. Contractors must also have training programmes in place for the people who will work on the buildings. Of course, this increases the amount of training that takes place, but it also increases the ability and the technical know how of those companies and individuals who can then go on to build and maintain other low carbon buildings. As we extend this across government clearly we are enlarging markets - in suppliers, for low cost buildings and so forth.
A further example from DIUS, together with DWP comes in the recent 'Work Skills' paper that we published two weeks ago. Welfare to Work policy has seen a great deal of innovative procurement during the last ten years with contracts for small and large organisations delivering New Deal and programmes such as Employment Zones and Pathways to Work.
In 'Work Skills' we announced that we wanted to bring together commissioning for both welfare to work programmes like these with contracting for skills and training too. So initially in Manchester and the West Midlands we will test out how we can combine two departments' procurement processes.
We want to do that so that potential providers will get the chance to focus more on outcomes rather than the delivery of prescribed services. This is the key to innovation in this area of procurement. Through it, more people will be able to get into work and to get the skills that they need to get better jobs too.
We are also committed to taking forward David Sainsbury's recommendation to have an effective Small Business Research Initiative (SBRI) that plays a pivotal role in improving Government procurement of R&D services whilst at the same time helping to develop and grow the UK high-tech SME sector.
By ring-fencing a small proportion of a Department's expenditure on R&D from SMEs, we can build capacity and sustainability amongst innovative businesses so that they can grow with some security.
We will be piloting the new approach with the Ministry of Defence and the Department of Health. We are in the process of developing proposals, and will launch pilot projects in the second half of the year.
Can I say Richard, I also want to welcome your support and that of the CBI for the work we are doing to harness the power of public procurement. At our request the CBI has identified companies who are willing to lend procurement experts to work with government departments in this area, and we will shortly announce the first exchanges of staff under this programme.
There are other areas where we can help to support innovation in the public sector, responding to some of the concerns and recommendations in your report. The specific challenge to Government to create a public sector champion for innovation is easy.
Actually that's me. As Secretary of State for DIUS it is my responsibility to champion innovation across Government. Of course I'll be ably assisted by my colleague the Science and Innovation minister, Ian Pearson and by my Permanent Secretary at DIUS - Ian Watmore who will take the official lead.
They are leading on several specific areas that will help. In the public sector, DIUS is supporting work at the Sunningdale Institute to improve innovation capability across Government and the sharing of best practice. My Department has created a network of senior civil servants pushing the innovation agenda at a senior level across Whitehall. And we have asked the Design Council to trial an innovation-enabling programme of designing demand for practitioners in the public sector, along the lines of the very successful existing private sector model. Overall we need to face up to the challenge of bigger and broader measures.
The Wider Role of Government
So if procurement is the big idea, what else is important? As I explained in my Qinetiq lecture at Worcester University last year, we in Government must understand what else in our power can help to shape the conditions in which innovative businesses thrive.
It's very clear that regulation can provide a positive stimulus by helping to create the right conditions for innovation. In financial services regulatory policy has helped to create the environment for innovation and growth in the City of London.
Other forms of regulation or intervention have had a similar impact. Congestion charging in London has boosted the development of surveillance technology and the markets for low carbon vehicles that have been exempted from the charge.
As we announced in Innovation Nation, we wish to take a more active role in the regulatory process, where it impacts on innovation. We are bringing together the range of Government supporting regulators - Ofcom, OfWat, OfGem and also organisations like the Environment Agency that also have regulatory responsibilities - so that with them we can understand and improve the conditions that they create for innovative business.
So regulation and procurement can be at least as influential in establishing the conditions for innovation in the economy as the allocation and distribution of funding through the science and research budget.
Science and Research
It is though worth mentioning for a moment the role that science and research does play. Whilst I have deliberately described how Government now understands its broader impact on innovation, it is still worth restating that the UK's world-class research base remains an absolutely essential component of the overall ecosystem.
On a recent trip to the US to look at their ways of supporting and harnessing innovation, even the IP lawyers described the indispensable role of fundamental research and science. Without that in place, little else is practically possible.
The science base is underpinned by public investment - in the last decade, the ring-fenced science and research budget has increased from £1.3 billion to £3.4 billion. Whilst it continues to rise, it is true that significant public investment will still be needed in the future.
We want to build on these successes and continue our investment in the research base whilst broadening the traditional knowledge exchange agenda to encompass new disciplines, new sectors and new businesses.
As your report emphasises it's vitally important that we have an intellectual property framework that protects the rights of innovators and allows them to turn the products of their innovation into wealth.
The Intellectual Property Office is supporting small businesses by improving the IP skills of advisers in Business Links and UK Trade and Industry.
I have also asked Paul Wellings, VC of Lancaster University, to look at how universities should manage IP for their own benefit and for the wider economy.
Of course the UK-IPO will continue to develop the 'Lambert' online toolkit of model university business licensing agreements.
We are also establishing a new Innovation Research Centre to ensure a steady supply of high quality innovation research.
The Government also leads the development of the skills necessary for innovation. For example, we influence the supply of innovative people through funding further education, higher education as well as through Sector Skills Councils and National Skills Academies.
Providing the join-up between the different agencies to facilitate this can be complex - that's why DIUS has been given a broader role on innovation including the lead on compiling the Annual Innovation Report across Government.
I hope that DIUS will be more than just the co-ordinator of these efforts. I am determined that we will also be the intellectual lead and the champion for Innovation across and throughout Government. I do think that we are making significant progress in embedding the understanding of and the need for innovation across Government .
One area that we know we need to address that was mentioned by Tim earlier is to understand the relationship between a culture of innovation in Whitehall and the management of risk. To do this, the National Audit Office have started surveying Government departments as part of their review into how public sector innovation is managed by central government departments and agencies.
This NAO report - when it comes out - will provide a very useful picture of what some of the key barriers are but also showcase some of the best practice that is happening across Government.
Risk is a part of the innovation process and so of course is failure. No minister or civil servant wishes to find themselves in front of the Public Accounts Committee justifying why a particular policy has failed or why an investment has been allegedly wasted. So, it is our job, together with the NAO to understand how we can change the debate and understanding of risk in the procurement and delivery of public services.
This is another area where the voice of the CBI is enormously important.
Role of Technology Strategy Board
One final, but important area to discuss is the work of the Technology Strategy Board. We all know I think that they will be crucial to our ambitions for innovation and for our work bringing together public institutions and the private sector.
The Technology Strategy Board a budget of over £1 billion to spend on promoting technological innovation over next three years, in partnership with Research Councils and RDAs.
I'm pleased that the Technology Strategy Board is expanding its activities into those service sectors where technological innovation is important.
21st century health and social care services will have to make greater use of technology, deliver care closer to and sometimes in, the home and make increasing use of a person's capacity to 'self-care' by supporting them appropriately.
Under the umbrella of the Technology Strategy Board's Assisted Living Innovation Platform, the Department of Health (DoH) and the Research Councils (ESRC) have agreed to coordinate their funding to develop technology to help independent living for those suffering from chronic long term conditions.
The Technology Strategy Board will also double the number of Knowledge Transfer Partnerships and introduce new shorter Knowledge Transfer Partnerships (from 10-40 weeks) that are particularly focused towards smaller companies, creative industries and service sectors that do not require a more in depth long term project.
We know that the vision that we have set for the TSB is ambitious. But it has to be. The board has a crucial role in helping to build capacity and understanding in Government as well as to deliver practical programmes and outcomes.
Conclusion
Let me draw my comments to a close by putting this all in a much broader context. I firmly believe that our capacity to innovate will make or break the British economy and the standard of living of the British people in the 21st Century. So it's vital that we continue to develop our understanding of and support for, the services sector.
We have listened to what the CBI and Qinetiq have been saying and I think that we are taking the actions in many areas highlighted by your report. We have developed an approach to innovation that both supports and promotes our services sector and backs it up with technical, policy and financial support.
The creation of DIUS a year ago was symbolic of the Government's commitment to do that. Over the past 12 months, the symbolism has been reinforced with actions and achievements. In many ways we are only at the beginning of the process, but we have I think, set out the terms for an ambitious agenda.
My commitment to you today is that, over the coming year and with your continued support, we will keep going and redouble our efforts to turn Britain into a genuine innovation nation. I look forward to your questions. Thank you for listening.
