Ian Pearson - UK Innovation, Technology and Growth Conference

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Introduction

Innovation is essential to the UK's future economic prosperity and quality of life: to raise productivity, meet the challenges of globalisation and live within our environmental and demographic limits the UK must excel at all times of innovation.

We must unlock the talent of all our people and become an 'Innovation Nation'. That is the key message in our White Paper which we published last Thursday. It sets out the bold ambition to help the UK the leading place in the world to be an innovative business, third sector organisation or public service.

I would like to use this opportunity today to draw out some of the main points from the White Paper and highlight some early priorities for Government in the months ahead. Before I do that, let me say very simply that as a country we are good at innovating and getting better.

The UK has many strengths: a leading position in scientific research, many competitive business sectors, a stable and supportive macroeconomic climate and a flexible labour market.

As you know, we are the world's 6th largest manufacturer and manufacturing adds over £150 billion a year to the UK economy. It is an innovative sector accounting for around two-thirds of all business R&D and over half of UK exports.

The UK sets the gold standard in areas such as aerospace, pharmaceuticals, food processing, high performance cars, and nanomaterials. We also have many prestigious construction projects and the UK is famed for its iconic design.

Our creative industries are growing at twice the rate of other industries, contributing £60 billion to the UK economy and employing two million people. And these creative industries are a huge part of the UK's global reputation; a statement of cultural diversity; and a chance for many young people to achieve success.

Businesses are increasingly engaging in 'open innovation' - reaching outside their walls to find ideas at different stages of development and then developing them in-house. Last year I launched the NESTA/Procter & Gamble Corporate Open Innovation Challenge, where I heard about Procter & Gamble's 'Connect and Develop' strategy that now produces 35% of the company's innovations and billions of dollars in revenue. I know that P&G now spends less on R&D but is more innovative. Toyota's networked approval to innovation has resulted in suppliers having a 14% higher output per worker, 25% lower inventory and 50% fewer defects.

The UK also excels through innovation activities that are not reflected in traditional indicators such as R&D or number of patents awarded. Only a third of UK business spend on innovation is on R&D.

And we are a nation of early adopters, helping to drive new markets - 69% of UK consumers say they are attracted to innovative products as opposed to only 57% across the rest of the EU. We are more enthusiastic about innovation generally than our European counterparts - this is reflected in our fast uptake in many areas of technological innovation, for example - the U.K. is the only country in Europe with more than 50 percent of households having digital television services.

According to figures, the 2007 UK Innovation Survey reports that 64% of UK businesses were active in innovation- a considerable on 2001- but a worrying statistic in that over one third of companies are not innovation active. You wonder what will happen to them. Also, although we have become vastly more productive over the last decade, our productivity levels still lag behind some leading international competitors.

So, I think today's conference is a welcome opportunity to celebrate the achievements of the country's most innovative and dynamic technology companies and to have a discussion about how we can further improve our capacity to innovate.

Role of DIUS in championing Innovation

One of the main reasons the Prime Minister created the Department for Innovation, Universities and Skills was to champion innovation across all sectors, working with partners across and outside Government.

Government creates good conditions for innovation by ensuring economic stability, open and competitive markets, and by helping to provide a skilled workforce.

In many sectors of the economy, maintaining this framework and investing in people and knowledge are sufficient for innovation to flourish.

But in some areas, Government can have a broader role in supporting UK business innovation, for example through the activities of the DIUS sponsored Technology Strategy Board. And, by using regulation and public procurement to stimulate innovation and public services, we can help shape the market to encourage innovative solutions in the future.

There are two broad themes I would like to focus on this morning, with regard to the role of Government in stimulating innovation.

Demanding Innovation

First, we need to shake up public procurement.

In an age where the public is increasingly able to use their spending power to effect change, Government should also be doing more to use its own spending leverage.

Innovation draws on a wide variety of sources and is driven as much by demand as by supply.

Over the course of the last few years we have seen a shift in consumerism as shoppers become increasingly health-conscious and environmentally aware. I'm thinking of the successful campaign for vegetarian Mars Bars, successful campaigns to encourage supermarkets to use fewer plastic bags and consumer crusades that use electronic redress or "e-dress" when faced with companies that break rules or regulations.

We need to take some of that spirit into Government.

With an annual procurement budget of £150bn, the Government has a lot of purchase power. We can use this to drive increased demand for innovative products and services. And we will.

I want my Department to play a key role in ensuring that we use this position as a key customer to drive innovation in the goods and services that the public sector buys. I realise we have to forge new partnerships with business. Both parties need to play their part: business must provide the very best solutions and as Government, we need to design procurement so that it actually allows for greater innovation.

This means change. We need involve business right at the start of the specification stage so that our eventual requirements promote not stifle innovation. To that end, each Government department will publish an Innovation Procurement Plan during 2008, as part of their commercial strategy, setting out how it will make innovation central to its procurement practices.

We will also work with other Government Departments and the Technology Strategy Board to reform the Small Business Research Initiative (SBRI), refocusing it on technology-based research. We will road-test this with the Ministry of Defence and the Department of Health, and then expand the initiative further.

We know - too - that civil service structures and approaches must be aligned to support innovation. Attitudes to risk, to budgeting and recruitment all play into this, and those responsible for public service delivery must also learn the lessons of open innovation and adopt innovative practices from the private and third sectors. That's why we have asked the NAO to conduct a study that will explore the role of risk in stimulating or stifling innovation in the public sector.

In addition to incentivising innovation through procurement, we can also regulate to encourage businesses to provide solutions for 'problem spaces' such as our high carbon footprint.

In last week's budget the Chancellor announced that people who buy the most-polluting cars will have to pay higher road tax in the first year. But those who buy cars with the lowest emissions will pay no road tax in the first year.

The Technology Strategy Board will have an important role to play in this. Its Innovation Platforms bring together Government Departments, business and academia to address a major societal challenge, open up market opportunities and increase business investment in R&D and innovation. The Technology Strategy Board will double its portfolio of Innovation Platforms over the next three years. And its Low Carbon Vehicles Innovation Platform will seek to accelerate the market introduction of low carbon road vehicles. The aim is both to maximise the benefit to UK business and to respond to the societal and business challenge of reducing transport CO2 emissions.

The Low Carbon Vehicles Integrated Delivery Programme, which was announced in the budget, is a part of this Innovation Platform and will see an initial investment of £40 million to provide greater co-ordination of activities from university research to future potential procurement opportunities, speeding up the time it takes to get low carbon vehicle technologies into the market place. Complementary funding to enhance the scope of demonstration activity is also under discussion with Regional Development Agencies & Devolved Administrations.

What is important is becoming more closely aligned - by joining end to end we can make a difference.

Unlocking talent

My second broad theme is that of unlocking talent. We must build on the strong foundations of our investments in the UK science and skills base. We know that business draws on the outputs of the higher education sector, both in terms of supply of their future workforce and in the ideas that spin out from research that takes place in universities.

We will continue to increase investment in UK science and will broaden knowledge exchange between the research base and businesses into the arts and humanities and service sectors such as the creative industries, as well as through technology.

Working with the RDAs and other stakeholders, DIUS will encourage the development of a national innovation voucher scheme. The vouchers will enable SMEs to 'buy' initial engagement with a knowledge base institution. Our ambition is to increase the provision of vouchers over the next three years to at least 1000 per year by 2011 as the vouchers are demonstrated to be effective for businesses.

This is likely to involve an investment of at least £3 million to help first collaborations between SMEs and the knowledge base. I have seen a pilot of the scheme in the West Midlands and it is already producing some impressive results including real bottom-line benefits for businesses.

DIUS will also pilot a revenue based FE Specialisation and Innovation Fund to build the capacity of the FE sector to support businesses to raise their innovation potential. Through a small number of targeted pathfinder projects, DIUS will seek to unlock the talent of the FE workforce to drive business innovation through partnership and knowledge exchange.

The Technology Strategy Board and its delivery partners, the Regional Development Agencies and the Research Councils, will double the number of Knowledge Transfer Partnerships and expand their coverage. KTPs have a proven track record of adding value to companies and we must build on this success.

Shorter term KTPs and KTP opportunities from further education institutions will also be available from autumn 2008.

Earlier this year, I visited a visualisation company in East London, GMJ design, and saw the benefits of a KTP scheme for myself. The KTP project taken forward in partnership with London Southbank University helped GMJ create new city modelling software, which promises to revolutionise the design and development process and could transform the way new developments are planned and marketed. The KTP has been really successful and GMJ is now in the process of negotiating development and distribution licences for the company's software and its collaboration with Southbank University has helped to secure new business in UK and US markets.

Conclusion

I have talked a lot about institutions - businesses, universities, Government departments and agencies. There's plenty about them in our white paper, much more than I've had time to mention.

But institutions aren't all that innovation and the white paper are about. When I speak of an innovation nation, I don't imagine buildings, but people. Because innovation and all the benefits that flow from it ultimately depends upon people who are able to innovate and prepared to take the risks that innovation involves.

Since DIUS was created last June, you've heard my colleagues and I speak of our desire to unlock the talents of our people by offering them better, more relevant and more easily accessible education and training opportunities. We've described the scale of the skills revolution that we need to bring about in this country over the next 10 years or so if we are to reap the benefits of continued prosperity.

Freeing the British people's capacity to innovate must be part of that unlocking the talents. Because innovation is not something that should be confined to software designers, scientists or engineers - we can all benefit from innovating.

Britain's ingenuity and application has astonished the world in the past. Today we have one of the best innovation eco systems to be found anywhere in the world and British business is an engine of innovation and wealth. To succeed in the future we need to excel at all types of innovation across all sectors of our economy and society. It is a challenge for all of us. Government can help foster innovation but only people can create an innovative nation.