Why is the UK being left behind in the innovation race?

Given its outstanding engineering and scientific heritage, the UK isn't as good at coming up with new products at it should be.

by Stefan Stern
Last Updated: 12 Nov 2015

When Satya Nadella emerged as Microsoft's chosen successor to outgoing CEO Steve Ballmer earlier this year, he not only won first prize in the game of corporate snakes and ladders, he registered a triple word score in business bingo.

'The first thing I want to do and focus on is ruthlessly to remove any obstacles (to) allow us to innovate, every individual in our organisation to innovate. And then focus all that innovation on things that Microsoft can uniquely do,' he announced on his appointment. 'Our industry does not respect tradition - it only respects innovation,' he added. 'To me, the heritage that this company has is still very relevant. We have to renew it. We have to do new things.'

A true innovation in business would be the boss who declared that all that innovation talk was getting pretty tedious, and it was time to concentrate on doing a good job with the resources you already have to hand.

There is little prospect of this happening. Suggesting that you might be less than passionately, even ideologically committed to innovation could mark you down as a subversive, and 'not the sort of person we want to have around here'. No - innovation is here to stay. The market, the customers, the analysts, the media all seem to demand it.

Of course, businesses have always wanted to innovate, whether by offering new kinds of confectionery, soap powder or motor cars. But why the intense and modish frenzy for innovation today?

Blame Clayton Christensen. In 1997 the Harvard Business School professor published The Innovator's Dilemma - when new technologies cause great firms to fail and, ever since, constructive paranoia has inspired a search for the 'disruptive innovations' that might save your business and knock over the opposition.

The belief that one big thing might offer the answer to everything is always a seductive trap for business leaders. Arguably, innovation has become that one big thing. The risk, as with any other management fad, is that in clutching onto a phrase or concept for support we stop thinking clearly and lose our way.

This is how a fundamentally good idea can become damaging in practice - see Management By Objectives, Total Quality Management, Business Process Re-engineering, and so on.

'One thing people forget about so-called disruptive innovation is that it is the market that gets disrupted, not necessarily the technology,' says James Woudhuysen, professor of forecasting and innovation at De Montfort University. 'Disruptive innovations might be "good enough" or "fast follower" products, which might not really be the way we want to go.'

Geoff Mulgan, chief executive of Nesta, the innovation charity, agrees that we need to be cautious before trumpeting every latest new thing.

'(Disruptive innovation) began as a useful way of talking about new ideas that change everything around them, seen purely through a business lens,' he wrote in a recent blog post. 'But it's become a cliche...unthinkingly presented as a good thing...it risks getting in the way of more interesting discussions, for example, about which kinds of disruption are desirable and that are not.'

The lesson is: if we are serious about innovating, then first we need to know what it is we are trying to do. Everyone is very excited just now about The Lego Movie and the stunning recovery pulled off by the Danish toymaker.

But the company's return to health started when it abandoned unwise, irrelevant innovations with other kinds of products and got back to doing what it was best at: making colourful little plastic bricks for children to build with. Yes, there are still new lines and product ideas, but they emerge from the essential core of the business.

Lego has pulled off a stunning recovery, and even has its own movie.

Perhaps we can learn from the companies that seem to be getting innovation right. Last autumn, Thomson Reuters produced its annual Top 100 Global Innovators league table. Here listed were all the familiar names of businesses that have wowed both consumers and investors in recent times.

Of course, 3M was there, famously encouraging employees to take time to work on their own new ideas. Of course, Google was there, which has adopted a similarly empowering approach. Procter & Gamble was there, well known for its use of so-called 'open innovation' - bringing ideas from outside the company into the heart of product development. And Samsung was there, the giant that turned its back on the shoddy almost two decades ago to focus on quality and customer satisfaction.

Yes, here was an impressive list, but with one troubling aspect for British readers: for the second year running, there was no UK corporate name in the top 100.

To qualify for entry to this list, businesses have to come up with 100 or more 'unique inventions' in the past three years. (A unique invention is defined as the first publication in a patent document of a new technology, drug, business process and so on.) Apparently, no British company had managed 100 of them.

Do we have an attitude problem or an aptitude problem? Perhaps neither, sceptics counter. Claire Ruskin from PA Consulting Group's Cambridge technology centre says there are a lot of Brits highly engaged with innovation in businesses here and abroad - they may just not all be working for British-owned companies. And then there is the question of what this league table actually measures: in effect, patent applications. And here we enter the murky and at times highly contested world of 'intellectual property'.

'Don't forget,' Prof Woudhuysen says, 'that the most important word in the phrase "intellectual property" is "property". This is where the lawyers come in. A patent-based analysis of innovation offers you only a very partial account of what is going on. Some of these patents are dubious at best. In other cases, you merely patent something to try and stop other people developing something. You actually look forward to the legal fight.'

Anyone who has followed Apple and Samsung's legal battles in recent months will recognise what the professor is talking about. Under the bonnet, as it were, some Apple and Samsung products are remarkably similar, being built largely from the same components. So who is really being innovative here? Sometimes it's mainly the lawyers.

Scepticism aside, perhaps there are structural issues preventing Brits from sustaining a more successful approach to innovation. Mariana Mazzucato, professor in the economics of innovation at the University of Sussex, argues in her recent book The Entrepreneurial State: Debunking private vs public sector myths that an ideology that rejects state support as 'crowding out' allegedly superior private sector investment is misguided.

Apple may rightly be seen as innovative, but all the technologies that make the iPhone a smash were 'pioneered by a well-funded US government', Prof Mazzucato points out: the internet, GPS, touch-screen display, even the latest Siri voice-activated personal assistant.

'While it's great that Steve Jobs had the genius to put those government technologies into a well-designed gadget and great, more generally, for entrepreneurs to surf this publicly funded wave, who will fund the next wave with starved public budgets and a financialised and tax-avoiding private sector?' Prof Mazzucato wrote in a recent Observer article.

The US pharma giant Pfizer did not move its largest R&D lab from Sandwich, Kent to Boston, Mass due to lower tax or regulation, she added, but due to the £32bn a year that the US National Institute of Health spends on the biomedical knowledge base that feeds the sector.

Reviewing her book for the FT, Martin Wolf was forced to agree. 'Yes, innovation depends on bold entrepreneurship,' he wrote. 'But the entity that takes the boldest risks and achieves the biggest breakthroughs is not the private sector; it is the much-maligned state... The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity.'

But while we wait for the government to seize the moment, what should businesses do in the meantime? One thing they could do is get the train to Royston, near Cambridge, and drop in on PA Consulting's technology centre, where for several decades management consultants and technologists have been working on honest-to-goodness innovations that have actually made it to market: PowderJect's needleless injections, Clearblue's pregnancy tests, John Smith's beer-can widget, and many more.

On a recent visit, I was allowed to see some fascinating work in progress, as well as one or two finished items. A big pharma company is working with PA to develop a clever way of administering a daily dose of medication for a chronic condition, which patients sometimes forget to take.

The device that administers the drug can be monitored remotely (this is a typical development in what is known as 'the internet of things' - clever objects that are all connected up). But the 'device' had to be tiny, worn on the skin, and cheap to make - 50 cents a unit, manufactured in batches of up 200 million units.

From within a year of being commissioned, PA has come up with a single-use disc that contains a dose of the required medicine, and is thin enough to be worn painlessly on the skin (sensors detect if it is in contact with the patient and delivering the dose effectively). Now that is innovation.

Less dramatically, perhaps, the kitchen towel company Better All Round asked PA to come up with a new manufacturing process to make its round Ora kitchen towels, now available (exclusively) at a Tesco near you.

This involved creating a new and bespoke production line to deliver the conical 100-sheet rolls that can be stacked and transported efficiently, and sold for £1.89 a go.

Other works in progress included new mobile air-quality monitors that could be attached to London's Boris bikes, should the mayor decide that he wants to collect much more accurate air-quality data, and new 'smart' QR bar codes that could prevent counterfeiting of luxury branded goods. Both these last innovations are also internet enabled, involving the transmission of real-time data.

What PA is doing with its clients is unique in the world of management consulting. But it shows what is necessary to make innovation work: a systematic and holistic approach to analysing the market need and opportunity, gathering and developing the necessary technology, prototyping quickly and then launching rapidly. It is not easy. It requires deep expertise and committed investors. But it works.

'Innovation is the most important force that makes our society wealthier,' write Erik Brynjolfsson and Andrew McAfee, economists from the Massachusetts Institute of Technology, in their new book, The Second Machine Age.

Brynjolfsson and McAfee's work is troubling to some, envisaging as it does the replacement of many jobs currently carried out by humans with automation of some kind.

'The robots are coming!' cry some concerned onlookers. 'The robots are coming, but not fast enough,' counters De Montfort's Woudhuysen. 'I wish it was true.'

He feels that innovation is held back by a lack of ambition, of appropriate risk-taking, and the absence of an almost idealistic sense of doing the right thing, not just what is commercially appealing in the short term.

New technology is not to be feared, he adds. 'The Luddites weren't opposed to technology, they were opposed to certain employers,' he says.

Old Street roundabout in London, where Google has sited its campus

The chronic lack of investment by British business would seem to support Prof Woudhuysen's point. There has been no rebalancing of the economy because we are still so dependent on house price rises and credit to make us feel better off.

And with labour so cheap - those wage rises still seem some way away - companies feel they have less incentive to invest in new technology when people can carry out tasks quite economically.

One supermarket chain has apparently been putting off investment in new warehousing technology precisely because humans can do the work more cheaply. But, in the long term, this aversion to investment and technological innovation builds in serious inefficiency, and saps any attempt to boost productivity.

And without greater productivity we cannot easily pay ourselves more, and so the dreary cycle continues.

In the end, we need to have faith in ourselves, and in human ingenuity, if we are going to innovate our way to a better economy and a better society. We have done it before. We will have to do it again.


Can you make innovation happen, as if by magic, just like that? No. But can you provide a setting, or 'cluster', to allow and encourage technologists to work together and develop new things? Maybe.

London's Tech City, officially launched in autumn 2010, had in fact begun growing several years earlier in the area around the Old Street roundabout on the edge of the City. Hundreds of mini startups - most of them app developers - converged on the area. Google set up a campus there in 2012.

Tech City has been a mixture of hype, energy and some (occasional) output. A high-profile chief executive, Joanna Shields, was hired from Facebook to become CEO of the initiative in October 2012.

But by January this year she had left. One technology expert familiar with the development of Tech City dismisses it breezily as 'a real estate play' - ie, a noisy scheme to drive up rents. But in recent months there have been signs that some real, actual businesses have emerged from the fluff and are putting down roots.

A company called Anomaly42, which employs 12 people, offers 'big data' security services to other companies. A company called Moni, with eight people, has developed an app to allow Western Union-style transfer of funds on your mobile.

There are more where these new businesses came from. These are technological straws in the wind and in truth there is still more hype and hot air than hard commercial reality in Tech City.

But who knows? That online global blockbuster may be about to appear any day now.

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