Spending on innovation is up, but will it ever be enough?
How much should a manufacturing company be spending on research and development? The answer to that depends partly on the sector it's in, also on the economic climate. Right across Britain, R and D shrivelled in the recession. Now, as the DTI's latest R and D Scoreboard shows, expenditure is on the increase again, and rising faster in the UK than among its international competitors.
But it's also clear that British industry's R and D spending has some way to go to match the competition - or to get back to its own historic level. In the '60s and '70s, a UK company at or near the leading edge of technology would typically devote the equivalent of 7-10% of sales turnover to R and D. Few, then or now, would want to equal Glaxo or Wellcome's current 15% of sales. But 20 years ago a mid-tech engineering company would very likely allocate 3-4% of sales to R and D. The 70-odd engineering firms in the latest Scoreboard spend, on average, just 2.3%.
Fewer than a dozen of these businesses pour as much as 5% of sales revenue into R and D. (The range extends from precision equipment maker Renishaw and Linx Printing Technologies, both investing over 8%, down to companies spending virtually nil.) Almost 60% of the sample devote under 2% to R and D, and two dozen companies spend less than 1%. 'If an engineering company is spending less than 5%, it's going to be vulnerable because, at that rate, it can't keep control of its own technological destiny,' argues Gerald Avison, managing director of The Technology Partnership, a contract R and D hothouse near Cambridge. 'That's a serious problem for UK industry. It betrays a lack of confidence about the future. A company not spending more than 1% is on the road to destruction,' he adds.
'For an engineering business, less than 1% is not enough,' agrees Chris Floyd, joint head of the European technology and innovation practice at consultants Arthur D Little. However, for a company employing mature technology in the manufacture of run-of-the-mill products, '2-5% is not unreasonable', he thinks. What's important, says Floyd, is not so much the amount of money as what it's spent on. Unfortunately, two-thirds of British R and D budgets generally goes towards marginal improvements in the existing product range. 'Companies don't spend enough on new products.' Weir Group, of Glasgow, is one of the lower spenders, ploughing less than 1% of revenues into R and D. Managing director Sir Ronald Garrick maintains that the published figures understate Weir's contribution to R and D because they are shown net, whereas 'most of our work is development' partially financed by customers. Besides, technological change in Weir's world of pumps, valves and materials handling 'is not exactly moving at the speed of light'. It's not money that's in short supply, Garrick suggests, so much as useful things to spend it on. 'We're not holding back on projects.' Money is usually available to support well conceived and commercially sound developments. Is lack of vision a greater problem?