Hidden InnovationHidden Innovation

Richard Halkett, Executive Director, NESTA Policy & Research Unit

OECD Innovation Workshop

29th October, 2007

NESTA is the National Endowment for NESTA is the National Endowment for Science, Technology and the Arts

• The largest single endowment in the UK exclusively devoted to innovation

• NESTA’s aim is to transform the UK’s capacity for innovation

• We invest in early stage companies, inform innovation policy and encourage a culture that innovation policy and encourage a culture that helps innovation to flourish

The Innovation GapThe Innovation GapWhy policy needs to reflect the reality of innovation in the UK

Sectoral composition of national economiesSectoral composition of national economies

Finland Japan Sweden US UKUK Germany France

High-tech

5.6 3.1 3.0 2.8 2.52.5 2.4 2.4

Medium-high

4.6 6.0 6.5 3.4 3.63.6 9.6 5.0high tech

Low 89 8 90 9 90 5 93 8 93 993 9 88 0 92 6Low tech

89.8 90.9 90.5 93.8 93.993.9 88.0 92.6

Source: OECD

Engineering consultanciesEngineering consultancies

The Boston Central Artery/Tunnel Project site looking eastwards towards Logan International airport. The last section of jacked tunnel can be seen on the lower right

Source: Mott MacDonald

section of jacked tunnel can be seen on the lower right.

Genetic testing in the NHSGenetic testing in the NHSPre-implantation Genetic Diagnosis (PGD) and Pre-g ( )implantation Genetic Haplotyping (PGH) procedures can weed out genetically defective embryos before pregnancy.

Initial PGD research was Initial PGD research was conducted in the UK in the late 1980s. Guy’s Hospital Genetics Centre and Kings Genetics Centre and Kings College London have recently refined PGH techniques.

DNA analysis of Duchenne muscular dystrophy (DMD)

Source: Science Museum

q

Hidden InnovationHidden InnovationHow innovation happens in six ‘low innovation’ sectors

Six ‘low innovation’ sectorsSix low innovation sectors

Sector Sales/revenue R&D intensity*Sector Sales/revenue R&D intensity

Oil £360 billion 0.2 per cent

Construction £17 billion 0.5 per cent

Retail banking £82 billion 0.9 per cent

Education £36 billion <0.1 per cent

L l id i £2 billi <0 1 tLegal aid services £2 billion <0.1 per cent

Rehabilitation £2 billion+ <0.2 per cent

Source: DTI/DfES/Home Office* R&D intensity refers to amount spent on R&D divided by sales

Type I hidden innovationType I hidden innovation

Based on science and technology but Based on science and technology but excluded from traditional indicators

Hidden innovation in oil productionHidden innovation in oil productionLife-of-Field Seismic was developed by BP, GEOSPACE developed by BP, GEOSPACE and nine other contractors

It uses permanent sensors planted on the seabed to create ptime-lapse movies of fluid and pressure changes to show how recovery processes are working i l tiin near real-time

This could increase recovery from Valhall by 60 million barrels BP estimates that its barrels. BP estimates that its ‘Field of the Future’ programme could increase recovery worldwide by one billion barrelsThe Integrated Subsurface Information System

(ISIS) in the Valhall Field in the North Sea y

Source: BP

(ISIS) in the Valhall Field in the North Sea

Type II hidden innovationType II hidden innovation

Innovation in processes organisational Innovation in processes, organisational forms or business models

Type II: Organisational innovation

BAA’s Heathrow Terminal 5

Type III hidden innovationType III hidden innovation

Innovation from the novel combination of Innovation from the novel combination of existing technologies and processes

Type III: Exploiting technology in new services

The first direct building in Stourton, Leeds. first direct launched in October 1989 as the UK's first October 1989 as the UK s first branchless telephone bank

Type IV hidden innovationType IV hidden innovation

Innovation that takes place ‘under the Innovation that takes place under the radar’ of many surveys

Type IV: Locally-developed small-scale innovation

Innovation is changingInnovation is changing

Global collaborations and partnershipsGlobal collaborations and partnershipsNUMAR’s 1988 patent application lodged at the application lodged at the European Patent Office

A drill log showing oil and water reservoirs

Nuclear Magnetic Resonance (NMR) is increasingly used in oil exploration to identify and extract reserves. The application of NMR was developed in h di l fi ld b ll d the medical field by a company called

NUMAR. NUMAR then worked with service companies to develop the tools that could be employed in oil

Source: EPO/Halliburton

Old ideas in new placesOld ideas in new places

Corus’ Living Solutions off-site manufacture of accommodation units for the Ministry of Defence. 10,700 units are being manufactured for MoD personnel near Salisbury Plain and Aldershot

Corus’ Living Solutions fully-fitted steel-framed modules are manufactured at its Shotton works in North Wales and delivered to site as ‘building blocks’ ready for assembly Off-site manufacture is cheaper faster results in less ready for assembly. Off site manufacture is cheaper, faster, results in less faults, and reduces waste and transport costs

The metals company formed a joint venture with construction contractors Mowlem and KBR to access the tacit knowledge and networks of the sectorMowlem and KBR to access the tacit knowledge and networks of the sector

Source: Corus

Type I: Technology developmentComplementary innovations

Valhall Field in the North Sea, location of the world’s first Life-of-Field Seismic system

BP’s Life-of-Field Seismic process

Hidden innovation in ‘traditional’ sectorsHidden innovation in traditional sectorsRolls-Royce has signed an innovative 10-year an innovative 10 year £1 billion contract with the Ministry of Defence to keep Royal Navy

b i t submarines at sea

The TotalCare contract covers technical

t t support, management of spares, and product development

Rolls Royce now makes Rolls-Royce now makes 53 per cent of its revenues from ‘aftermarket’ services

Implications for policyImplications for policy

Implications for policyImplications for policy

• Policy needs to support systems and include Policy needs to support systems and include promotion and diffusion, not just invention

• Developing a full innovation strategy will depend Developing a full innovation strategy will depend on working closely with industry to identify the innovation that matters

• A sector-relevant Innovation Index would better guide policy development

• Innovation needs to be at the heart of – and across – government policy

Recommendation: Develop sector-specific innovation agendas with industry

UK construction industry innovation agenda

Recommendation: Create a UK-specific Innovation Index

UK construction industry benchmarking KPIs

The impact of wider policies and conditionsThe impact of wider policies and conditions

7,000 350

es,

mill

ion

(mm

boe)

5,000

6,000 Exp

lorat250

300

Oil price crash

Tax changes

rce

dis

cove

rie

oil

equiv

alen

t (

3,000

4,000

tion an

d ap

pra150

200

crash

Promote li

Tota

l re

sour

bar

rels

of o

1,000

2,000

aisal wells

50

100

licences

Year

1970 1975 1980 1985 1990 1995 2000 2005

Source: DTI/UKOOA

Recommendation: Place innovation at the heart of government

Recent policy developmentsRecent policy developments

1. Changes in machinery of government

2. Reformed Technology Strategy Board

3. Lord Sainsbury’s Review of the Government’s Science & Innovation Policies

4 Comprehensive Spending Review & Pre Budget Report4. Comprehensive Spending Review & Pre-Budget Report

research@nesta.org.ukresearch@nesta.org.uk