John Denham - QinetiQ lecture: "Harnessing Knowledge"

Introduction

Thank you and good afternoon.

My subject today is harnessing knowledge – how in Britain today, we must establish and support the conditions in which knowledge and research become the principle drivers of our economy and how they must also help to shape the society in which we live. Meeting Britain’s needs, but also understanding what the Government can do to help create the conditions necessary for that to happen.

In the past we have harnessed other assets to drive changes - natural resources, muscle power and our longstanding ingenuity and ability to discover, invent or create new ways of doing things. In the 18th and 19th centuries, the industrial revolution brought all of these things together and dramatically changed the world in which we now live. Much of this of course began just a few miles away along the banks of the River Severn and eventually helped to shape the economies of towns and cities such as Worcester as well as Britain and the modern world.

Today we cannot rely on the same combination of factors to maintain our place in the world. Instead we have to make much better use of the assets we have. Instead of coal, clay and mass production we must bring together other things in the 21st century. Bringing the skills of our people much closer together with the country’s traditions of invention, ingenuity and scientific discovery will shape our communities, towns and cities like never before.

Which is why there is now a Secretary of State for Innovation, Universities and Skills.

DIUS story

The new Department for Innovation, Universities and Skills was created by Gordon Brown on his first full day as Prime Minister. It brings together for the first time in Government three closely-linked strands of policy that will be key factors in determining Britain’s future economic and social wellbeing.

Britain can only succeed in a changing world if we develop the skills of our people, at every level, to the fullest possible extent, carry out world-class research and scholarship, and apply both knowledge and skills to create innovative products, services and companies. In turn, we need to raise skills levels in order to take advantage of the opportunities that an innovative economy brings.

So the three strands of DIUS’ work are all crucial for the future prosperity of this country.

But they are also crucial to building a society where no-one is left behind, and where ordinary people are given a greater stake in the community in the form of higher wages, higher aspirations and more stable and secure lives.

Redefining innovation

For many people, the innovation process begins and ends with scientific or technological discovery and its translation into practical uses. This understanding would make our approach relatively straightforward – invest in fundamental research, then in early practical development; allow it to be translated by others – usually from the private sector - into mass or niche market products. In other words, keep spending on basic research and investing in science and technology and the rest will follow.

But innovation and our interest in its exploitation goes much wider than that. My new Department needs to bring with it a new and much broader conception of what innovation is, where and how it happens and how the Government should be championing it.

A strict definition can be problematic but a common understanding of what we mean by innovation will be helpful for us for today’s purposes. In the past Government has defined innovation as the ‘successful exploitation of new ideas’. Hence the title of this lecture; Harnessing Knowledge.

However let me qualify that with two important caveats.

Firstly, innovation is not always ‘new’ ideas, but often a different combination of existing concepts and ideas. Ideas may be new to certain environments or sectors – or even to countries – when they have been in use for long periods elsewhere.

‘New’ does not always mean ‘technological’. Technology obviously plays a huge part in innovation but it is only a part of the story.

Secondly, ‘successful’ has a clear business and financial connotation. This is not always helpful either. Commercial or market success does not necessarily relate to the ability to innovate. Public sector innovation is also incredibly important.

The broader and more flexible view of innovation that I want to propose encompasses not only new discoveries and new products, but new ways of thinking, new ways of working and new ways of doing business.

Our perspective must include a much broader understanding of where and how innovation must happen.

Innovation in the service sector is as important as that in manufacturing, technology and science. The creative industries represent a vital and ever increasing proportion of our national wealth – the arts – music, theatre, culture, film, television, design, computer games and digital media. Innovation and knowledge are a fundamental part of these sectors and the impact they have on our economy and in our everyday lives is huge. Here at the University of Worcester, I know that this is a rapidly developing and expanding part of your work.

Innovation in the public sector is also crucial. As Sir John Chisholm knows, in his role as Chair of the Medical Research Council, its discoveries and inventions will drive the effectiveness of the NHS today and in the future. The Prime Minister announced last week that we that will be creating a new Centre for Medical Research at a central London site behind the British Library. This will bring together a range of partners including University College London, the Wellcome Trust and Cancer Research into a state of the art research facility. That work will undoubtedly have an impact on our day to day lives, showing how important innovation can be to each and everyone of us.

Other areas of the public sector are equally important in harnessing knowledge, driving innovation and changing lives. Schools, colleges and universities are delivering learning in ever more creative and ingenious ways – using technology and new types of buildings and facilities. Personalising learning, enabling people of all ages to acquire knowledge and skills in ways that suit their lives and their ambitions for themselves and their families. Again, with this university’s traditions in education and teacher training these concepts should be very familiar.

There are many other sectors where innovation has delivered real change and will continue to drive our economy in the future. Financial Services, the Retail Sector, Telecommunications and Environmental and Energy technologies to name just a few.

It is also worth saying categorically at this point that we are not just talking about a ‘new’ economy as opposed to an old economy that makes things. In too many debates about building a knowledge economy the role of manufacturing or traditional industries has been neglected.

Manufacturing is an indispensable part of the broader economy and the innovation agenda. It is the sector that has often driven invention and change in the past. That is still true today and will be in the future. The UK is after all, the sixth largest manufacturing nation in the world – and one of our most productive and innovative sectors. As you know, this lecture is supported by Qinetiq – a part of this thriving sector and well established in this part of the world.

Government’s role in innovation

What does this all mean for the role of Government or that of DIUS specifically in driving innovation in the UK?

By setting a broad definition of innovation, we help to set the tone.

Government can also focus on building innovative capacity, on creating the right conditions and incentives for companies and on maximising the scope for interaction between different innovative activities, concepts and people.

This implies the Government cannot just pour money into research and science – or even into newly created organizations like the Technology Strategy Board - and then sit back thinking we’ve done our bit to promote innovation. Instead it is Government’s role – and as I think a fundamental role for DIUS – to create and foster the conditions in which innovation can take place.

We can make it easier for universities to work with businesses and public services and vice versa. We can help to ensure that employers can get the training and the skilled workforces that they need to best capture innovation – and that individuals can get the skills that they need to get these jobs too.

We can identify and encourage innovation wherever it is found, and wherever it is found to be useful.

We need to identify areas of national life where the culture of innovation is weak, and where it could be strengthened by our intervention.

However, we also need to be aware of where Government can hamper innovation, where it gets in the way or indeed, where innovation can take place effectively without our help.

So there are a range of other short and longer term decisions from Government that will have a direct and a major impact on the level of innovation in particular sectors.

So for example. By setting clear targets for renewable energy in the UK and by making binding commitments to addressing climate change the government will have helped to establish a fairly predictable market for renewable energy and environmental technology here in the UK.

These opportunities alongside world leading knowledge and scientific understanding in these fields puts us in a great place to benefit economically too. Indeed the findings of the recent CEMEP report confirm this view – with opportunities for low carbon energy sources, vehicle technology and so on.

But the long term opportunities created by Government energy targets also require Government support to this emerging sector. The new Energy Technologies Institute is backed up by up to £550 million of Government funding and over £450 million of private sector funding. In partnership with some of the world’s biggest companies, the ETI will deliver solutions to help make the energy in our homes and businesses safer, cheaper and more sustainable in the future.

And there are other important areas too that can define innovation. Government procurement sends powerful signals across a range of sectors about the kinds of services and products that it buys. Annually the Government spends over £125 billion of tax payers money on procuring products and services.

Within my own responsibility. I recently announced that all projects commissioned through the Learning and Skills Council’s capital budget must conform to the highest possible standards on carbon emissions. This amounts to over £2 billion during the next three years – a powerful signal that we are able to send through DIUS.
Across Government, procurement needs to support innovation.

Regulation too can provide a positive stimulus by helping to create the right conditions for innovation. Regulation in financial services has helped to create the environment for innovation and growth in the City of London.

Consider other forms of regulation or intervention too. 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.

So regulation and procurement can be at least as influential in establishing the conditions for innovation as the allocation and distribution of funding through the science and research budget.

Because of these issues and because of our clear responsibility for many of relevant institutions and agencies, DIUS has been given a broader role on innovation including the lead on compiling an annual Innovation report across Government and also the production of a white paper on Science and Innovation in the spring of 2008.

DIUS responsibilities

However, before I explain both of these in more detail let me start by telling you what sits firmly within the DIUS family.

I have already explained that we are responsible for universities, colleges and for a range of organisations designed to work closely with them such as HEFCE, the LSC and Sector Skills Councils.

DIUS is also responsible for the research councils and for the allocation of the Science budget.

And there are several other organizations associated with us that are critical to the innovation agenda. My new Department is responsible for sponsorship of the National Endowment for Science, Technology and the Arts – NESTA - which does so much to promote innovation in this country.

The Design Council now also comes within the DIUS family. Sir George Cox is chair and has recently reported to Government on improving creativity in business.

As I have also explained DIUS is also responsible for the Energy Technologies Institute and the Technology Strategy Board.

The TSB – under the new chief executive Iain Gray - has now helped to generate investment in collaborative research and development totalling about £1billion. We recently announced a round of new projects with over £101 million of investment.

And encouraging innovation is something that we, as a Government, need to do more of. Not just through NESTA, the TSB or the ETI but through as many of our activities as possible.

A useful step towards such an understanding was made just a few months ago in Lord Sainsburys’ review The Race to the Top. Among other things, he pointed out that we still have insufficient understanding of how innovation takes place in some sectors of the economy, and notably in service industries.

He also pointed out the key role played in our national “innovation ecosystem”, as he called it, by higher education institutions like this one. And the need for us to keep working to bring what they do to make new knowledge available and what business does to put it to practical use closer together.

Most importantly for my department he gave us two specific roles. We will be leading the preparation of an annual Innovation Report and we will also publish a strategy on science and innovation, describing how we intend to implement the relevant recommendations made by Lord Sainsbury and also how we intend to set about creating the best conditions for innovation to take place.

Work on this, led by my colleague Ian Pearson, is already in hand. We are going to engage with a wide range of stakeholders in developing our proposals.

Some of you will already have been approached and asked to take part. Others will be in due course. Some of you may have already come across our innovation micro site on the DIUS website. Appropriately I think, we wish to develop this work in an open fashion.

We wish to reflect the “open innovation” model that businesses like Proctor and Gamble have already introduced successfully. This looks for innovative ideas not only to researchers, but to the company’s workforce and indeed beyond. Proctor & Gamble's open source model for innovation now generates 35 per cent of the company's innovations – a figure they want to see rise to 50 per cent.

This model is becoming increasingly popular in the private sector and indeed – as Ian Pearson announced last month – it is also one which my own Department is adopting in this process and in other policy areas.

So to all of you I issue this open invitation. If you have any ideas on the areas that I am about to cover, or indeed any others, that you think should appear in the document, please send them to me or to David Evans, the new DIUS Director of Innovation, or just work through the website.

To start this process what I thought it might be worth doing today is giving a very tentative assessment of our current analysis of the strengths and weaknesses in Britain’s innovation system. It is work in progress and we will want to discuss, develop and refine this analysis as we develop our thinking and as we continue to set out the DIUS role in the future.

Science, Technology and Research

Let me start with some obvious strengths. Government has increased investment in the UK’s excellent science and research base - spending has more than doubled over the last ten years. In total DIUS will be spending almost £6 billion on research by 2010-11.

The Science Budget will increase on average by 2.7% in real terms for each of the next three years. Every single Research Council has received an increase in its funding in real terms.

There are also strong incentives for the exploitation of this public funding. The Higher Education Innovation Fund – HEIF - is rising to £150 million per year to create incentives for universities to commercialise research and engage with business.

But in the UK as a whole there are weaknesses too. There is not enough business investment in Research and Development with the proportion of GDP currently spent by business on R&D stagnating at around the 1.8% mark.

However as NESTA have recently pointed out in their hidden innovation work, overall spending to support this broader notion of innovation is likely to be significantly higher.

A further problem is the fragmentation of UK infrastructure. To date we don’t believe that there is enough coordination between regions or sufficient transfer of technology and innovation between sectors.

So there are strengths and weaknesses but there are opportunities and actions in hand. The TSB is really invigorating the profile of technology in the UK and other public – private partnerships such as the ETI are clearly building on UK strengths.

Business Innovation

We have some considerable strengths already in business led innovation with very strong high tech sectors such as aerospace and pharmaceuticals.

There is also a growing population of high tech SMEs around many of our leading Universities and as I have already explained, there is strong ‘non-technological’ innovation in some high value added services such as the creative and financial service industries.

But again there are some obvious weaknesses. The UK’s success in developing its service sectors does not always mean that R&D expenditure is the best way of measuring innovation.

And according to the 2004 Innovation survey carried out by the DTI, there are far too many non- innovating businesses amongst SMEs. Connected to this is that there are not enough demanding customers driving innovation through their supply chains.

As worrying perhaps is the uneven regional innovation performance with a much lower innovation performance outside the Greater South East.

Public Service Innovation

We have many strengths in the public sector and that this is a key area but that our understanding and appreciation of innovation needs to be further developed.

There are some world leading examples from within the UK such as NHS Direct and Directgov. There are also many innovative processes adopted in public services in recent years such as the open governance model used by the Food Standards Agency. I would also add examples from my DIUS such as the Train to Gain programme and also the Higher Education Innovation Fund.

But there are certainly weaknesses and we must be completely honest about them if we are to improve levels of innovation and risk in Government and in the delivery of public services.

Incentives for officials and organisations often work against innovation in the public sector. There are also areas where skills are weak – such as those required for innovative procurement practices. There is not enough transfer of good performance between different public bodies.

There is the problem of risk. In Government we know that spending money on projects and programmes that don’t work is seen as failure. Even successful programmes that reach the end of their useful lives will be described as a failing if they are closed. Our parliamentary system holds us to account – both ministers and civil servants to account for such failures. And I can assure you as a former Select Committee chair that being hauled in front of the Public Accounts Committee can be an uncomfortable process.

I’m all for accountability and scrutiny, but without risk there will be less innovation in the way that we develop policy and deliver public services.

Innovative People

I have already suggested that people are key to innovation and that the bringing together of science and innovation with the skills and capabilities will help to strengthen both our economy and our society.

Again there are many strengths in this area. We have excellent universities and colleges with rising participation and a rapidly improving education system in general.

But as Lord Leitch pointed out there are real weaknesses too. Our skills levels overall – and particularly for adults in the workforce are weak by international standards. Far too many people have problems with literacy and numeracy and business engagement with skills and training can be inadequate.

In some sectors, universities and colleges are not sufficiently driven by the needs of business or by individuals in the workforce.

International Collaboration

The important recommendations of both Lord Leitch and Lord Sainsbury are firmly rooted in the profound changes to our society and economy exerted by globalisation. Both reports pointed to significant strengths. A strong economy, high employment and a strong record in science and research to mention just a few.

The terrific, world class research community – perhaps one of our best kept secrets.

And our economic future will depend as much on international collaboration as it will on competition. I recently opened the new office in China, one opened last week in the United States; and one will shortly be opened in India.

We have to work to make the UK to be the partner of choice for international research collaboration. The new international fellowships – led by the National Academies - will take us towards that goal. They will help build sustainable networks with the best institutions and individuals abroad. They will attract outstanding researchers from around the world to the UK.

Consumers and society

Finally I want to talk about consumers and society as drivers of innovation. The most effective stimulus for innovation is demand for it from the general public.

There is a strong pro-innovation culture developing in consumer demand. The demand for and sales of technological goods is soaring. IPods, Broadband, mobile phones and many other forms of technology are in great demand – and from all age groups and sectors of society.

Consumers are demanding more from services too. Shopping must be delivered to the door, and services delivered when they are demanded. The personalisation of a wide range of public services is developing because this is what people demand.

There is strong public interest in some technology or innovation relevant areas such as in addressing climate change. Sustainable goods and technology are also in great demand and have been popularized in recent years.

But there are problems too. There is inconsistent demand across sectors and consumer goods as well as in individual behaviours. There is not enough user-led innovation – in the public sector or in private goods or services.

But there are also worrying gaps in the public trust of technology and science.

This doesn’t means that everyone has to be a scientist – or that everyone needs to completely understand the technology that surrounds them – but that we need to make a concerted effort to increase the public understanding of science and innovation processes. It isn’t just an argument for better-informed consumerism. It’s an argument for greater democracy in our society because already, and increasingly, the pace of scientific change calls on the public to take a view on ever-more complex issues of which non-specialists often have only the haziest understanding.

Plenty of examples will occur to you. GM foods is one, climate-change another. MMR, Genetic profiling, animal experimentation and its alternatives, biometric data, the legal limit for abortion, the list goes on.

To make informed political and indeed ethical choices, ordinary people need at the very least a clear appreciation of what the terms of the argument are and where its boundaries lie.

These are important issues for us to address in the science and innovation policy process. But they are also relevant to Government and to society as a whole.

Nearly 50 years ago in C P Snow’s famous Rede lecture at Cambridge University he observed a growing chasm between what he described as the “two cultures”: the world of art and the world of science. His arguments remain relevant today.

More than ever, therefore, sound policy in today’s society needs to be underpinned by a sound understanding of science and innovation among the general population. I think this is essential if we are to develop the capacity of our people to contribute fully to the innovation agenda. We must improve their skills across the board and particularly in STEM subjects.

We need to do this not just for the reasons that I have hopefully made clear already. But also because we need more people to demand more from us. More from Government and more from the products and services that they consume on a daily basis.

Research, science and technology

I have already implied that public funding of research and science is one of this country’s main drivers of innovation. That is, indeed, another of the central points of Lord Sainsbury’s analysis.

The largest share of both public and charitable research funding supports medical research. That is as it should be. Medicine is the discipline that has the most direct effect on people’s lives at times when they need it most. Think of what has been achieved in recent years in the diagnosis and treatment of diseases like AIDS and cancer. Or what effort is currently going into research on treatments for H5N1.

The man in the street can see the purpose of medical research and would probably think of this as money well spent. That is why people also give such large sums of money to medical research charities.

Similar, though less immediately obvious, arguments apply to non-medical fields.

For example, people can see and appreciate what the transfer of agricultural and environmental innovation – often quite low-tech and carrying minimal cost by comparison with the results achieved - is doing to alleviate poverty in parts of the Third World. As I have said, innovation doesn’t always have to be new to be effective or desirable.

For example, the man in the street might find it somewhat harder to understand why we spend enormous amounts of taxpayers’ money on research into space, where very few of us stand any chance of going.

The fact that this is the sort of research whose products will allow him to watch Euro 2008 games live next summer – though admittedly he may not want to, all things considered – is a much more easily understood argument.

Research council allocations

These were the sorts of considerations that I had to take into account earlier this week when I announced the research council allocations for the next three years.

Taken together with the overall settlement for higher education, these raise public investment in our university system to record levels.

My Department is currently spending almost £5 billion a year funding research, and that figure will rise by more than inflation over the next three years to almost £6 billion by 2010-11.

The future

I’ve covered quite a lot of ground today and I’d like to end by drawing together some of the threads of my argument.

One of the main things that I’ve tried to make clear is that there is a new and potentially very powerful voice in Government in favour of innovation and the science and skills that make it possible.

And that I intend to ensure that this voice is heard.

I’ve also said that I see the dual roles of DIUS in this field essentially as being twofold. On one hand, we want to promote innovation in the further and higher education system through funding and other incentives, and to work with the rest of Government to develop a greater culture of innovation throughout the public sector. On the other, we will explore with the private sector what we can do to create the conditions that make it easier for business and industry to innovate.

If we are to harness knowledge in the way that Britain will need if it is to be competitive, prosperous and socially cohesive by the second quarter of the 21st century, there is an awful lot for us to do.

Ensuring that the huge amounts of money that we are continuing to invest in research leads not only to outputs that are practically useful today, but also to discoveries that may only find practical application tomorrow or the day after.

Promoting still-closer and more productive contacts between further and higher education and the world of business, and between what happens in further and higher education and what happens in schools.

Driving forward innovation in the public sector.

And making sure that the public at large has the information it needs to understand what we are trying to do and to come with us on this journey.

As I mentioned at the start of this talk, much of what I have said today will be explored in greater detail in the strategy that will appear next year. I hope that as many of you as possible will take part in that process and in the debates and activities that will follow that.

It remains only for me to thank you once more for the chance to come to Worcester and talk to you today.