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Raising the game on R&D

There is less than a month to go to the government’s first Budget. The Conservative manifesto has promised historically large increases in investment to help the UK get to a target of spending 2.4% of GDP on R&D. In this context, one of the most important questions we have to ask is: how can the UK spend that money well?

It’s a generational challenge

First, a reminder of where we are. The UK’s R&D intensity – the amount we spend on R&D as a percentage of GDP – hasn’t budged for a long time. It’s bumped about around 1.7% of GDP since the late 80s. In fact, it’s entirely possible that someone could have been born, gone to school, gone to university, worked for over a decade, got married and even spent the last two years as Director of Innovation and Digital at the CBI … and never have seen R&D intensity increase in their lifetime.

Baby Felicity would surely have been distressed to learn that R&D levels would remain so low throughout her life

Reaching 2.4% will be hard.

Raising R&D intensity is something we’ve failed at before. Back in 2004 the UK released its science and innovation framework, which included an ambition to increase R&D from 1.9% to 2.5% of GDP between 2004 and 2014. We didn’t do it.

There were three big reasons we failed:

  1. The great financial crisis hit investment (although we were already off track in 2008)
  2. Government failed to increase public expenditure to the extent needed
  3. A lack of long term policy focus

But, international evidence tells us the challenge can be met

Although the UK hasn’t yet turned around its R&D performance, other countries have. In the last twenty years, 14 other countries have achieved equivalent – or even greater – increases. Almost all of those increases saw business investment do some of the heavy lifting, critically, though public investment played a role in leveraging that additional private sector spending.

Improving the UK policy environment for business R&D is therefore key. That means maximising the leverage public investment achieves and ensuring there are strong incentives for multinationals to invest in the UK.

The international experience reveals “Five Fs” to improve the policy environment

  • FOCUS: A long-term strategic approach to R&D investment reflecting national characteristics is the first, and most important tool for success. In almost all countries who have achieved big steps up in R&D investment, the longevity of approach is key. If you’re looking to make long-term change, you need a long-term approach. The OECD has a great paper on the rationale for an innovation strategy.
  • FLAUNT IT: don’t underestimate this one! Well-marketed support designed to meet industry needs and attract international investors is key. Angela Merkel was key to selling Germany’s Industrie 4.0 strategy(there’s even a photo of Putin holding it) or think about Estonia’s “E-estonia” branding. It’s catchy and it gets investors’ attention.
  • FAIL FAST: this is an area where government can learn from business. Successful innovation policy should embed a willingness to pilot, learn from failures and international good practice.

The UK has made much progress in each of these areas in the last few years, but there is more to do! The next steps must build on the unique UK context.

  • The UK has incredible research and innovation but both have been subject to under investment. Innovation funding is particularly underweight and has faced high levels of chop and change.
  • Compared with other countries, the UK industrial mix has a lower-level of R&D-intensive sectors like manufacturing. This is compounded by only average levels of innovation adoption.
  • Research and innovation is highly concentrated: in a few large companies; in a few sectors and in a few regions. The UK is also highly reliant on international investment

The UK needs a long-term framework to increase Research, Development and Innovation

This table sets out the key actions that the CBI is calling for, addressing each of the Five Fs.

The Five Fs for UK R&D success
Continue reading “Raising the game on R&D”

Taking a tech reality check

Businesses’ relationship with technology is rapidly changing, but adoption isn’t the end of the story

2020 has been a watershed moment for technology. Amid the Coronavirus crisis there has been an acceleration of businesses’ tech strategies; ramped up homeworking and digital has fast become a lifeline for many businesses. That makes it a fitting time for London Tech Week, with its discussions of how UK technology is tackling today’s biggest issues and the role it will, and should, play in the future.

The CBI asked businesses about their technology and innovation investment in our Tech Tracker survey, in partnership with Accenture. Our recent deep dive into the numbers highlighted three digital dilemmas businesses should be aware of, to really make the most of the digital tech they’re investing in.

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Technology adoption itself isn’t the end of the story. Many businesses don’t achieve full value from the technologies they adopt.

The evidence suggests that the firms falling furthest behind in maximising the value of technology adoption risk missing out on 46% of their potential revenue in 2023 (Accenture, Full value. Full stop.). Even though today’s picture is fast-evolving, a rapid acceleration of firms’ digital strategies means that it’s now more vital than ever for businesses to overcome the common challenges of digital transformation and get more from their technology.

According to Douglas Adams, ‘Technology is a word that describes something that doesn’t work yet’. That can sometimes feel all too true to those of us for whom video meetings have become the norm (and who may occasionally forget to unmute ourselves…)! But beyond avoiding our individual tech blunders, there are steps businesses can take to ensure that technology works better for them, their employees, and their customers – to help them get the most from their digital investments.

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There are three ‘digital dilemmas’ for businesses to be aware of

Our research revealed three ‘digital dilemmas’ in particular – common challenges shared by firms that stop them getting more from their tech.

  • Getting the most out of data: We’ve generated many times more data than stars in the known universe – so it’s no surprise that making sense of it is the biggest barrier to innovation, reported by a third of businesses we surveyed. Many of today’s technologies are only as good as the data they use, making it vitally important for businesses to understand what they want to get from their data, store it in a way that works best for their business, and build robust data protection and cyber security practices with employee buy-in.
  • Involving employees in innovation and technology adoption: Most Tech Tracker respondents believe their culture promotes innovation – but one of the biggest difficulties businesses share is giving people the time they need to innovate. If employees don’t get it, the technology won’t work. One great way to get staff buy-in and increase engagement is to encourage people to innovate within their own roles. Employees might be best-placed to identify where technology could aid and improve their own day-to-day routines and processes. Not only does that involve giving people the time to innovate, it also relies on a culture where mistakes are learning opportunities.
  • Put ethics into practice: The word ‘ethics’ can conjure images of philosophical musings and moral mazes, and it can be hard to identify the practical steps that lead to a more ethical approach to technology – especially when the tech landscape is moving so fast. But it’s more important than ever as we strive to build back better. Organisations already think about meaningful ethics, through good governance, employee empowerment, and customer engagement. And you don’t have to start from scratch: the CBI’s report AI: Ethics into practice contains concrete actions and real-life examples to help businesses navigate emerging ethical issues.

For more business insight including steps you can take to address the ‘digital dilemmas’ and get more from your technology, read our report:

Tech reality check: business must move beyond the hype on digital technology

CBI members can also read the latest on the CBI’s Innovation and Digital policy work and get involved at MyCBI.

New investment: how to spend it

The Budget announcements had chunky commitments on key areas of focus for UK innovation and digital policy:

  • On R&D: a 15% uplift in R&D funding next year, and plans to get to £22bn per year by 2024/5, alongside an increase in the rate of the R&D tax credit (and a consultation on whether qualifying R&D tax credit costs should include investments in data and cloud computing) and confirmation that the government will go ahead with ARPA – all are good news, and all reflect CBI asks.
  • On digital infrastructure: CBI asks are reflected with £5bn to connect the hardest-to-reach areas of the UK with gigabit broadband as well as £510m for the Shared Rural Network to improve 4G coverage, which will be more than matched by business funding.
  • Innovation adoption: an additional £5 million was announced for Be the Business to expand its national productivity campaign and further develop its digital tools and resources.

This package of measures, alongside others to improve access to finance and broader increases in infrastructure investment, are good news for the UK’s innovation and digital economy.

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Now the money has been committed, the next question is how to spend it?

  • On R&D this question is particularly pertinent. Although some announcements were made, much of the decision making has, appropriately, been deferred to the Spending Review. Key considerations must be ensuring the money increases R&D investment around the country and will need to be designed to leverage in business investment. We’ve done some thinking about how that might look.
  • On innovation adoption the role that adoption plays in increasing the market demand for innovation is often underestimated. It is worth considering if some of the R&D money could also go for supporting adoption (for example in the way that the Industrial Strategy Challenge Fund is used to support Made Smarter). I’ll share more information about innovation adoption trends and challenges on this blog soon.
Continue reading “New investment: how to spend it”

Why the world needs more Women in Tech

This time last year, to mark International Women’s Day, the CBI had its first Women in Technology network meeting and I’m delighted to say that the group is now going from strength to strength.

We set the group up because technology is shaping the future, and if that’s going to be a future that works for women, then it’s vital that women are shaping technology. The excellent Caroline Criado Perez has written extensively about how the world is designed around a “one-size-fits-men” approach, to the detriment of women and girls.

I have my own personal experience of that. My Dad is a helicopter pilot, and – because of his love of aviation – my middle name is Amy, after Amy Johnson, a pioneering aviator who set many long-distance flying records during the 1930s. Exactly the kind of woman we should be celebrating on International Women’s Day!

The indomitable Amy Johnson

My Dad was keen to share his love of flying with my sisters and me. I have fond memories families’ days and the highlight of seeing the helicopters when I was a little girl.

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Me as a little girl exploring a helicopter

But one memory is particularly deeply ingrained. It’s the moment when I knew for sure I wasn’t going to take to the skies. My dad was telling me how long some of their flights sometimes were, and he pulled out this tube and asked me what I thought it was. I had no idea. Cue awkward moments of silence while I tried to figure out what this thing could possibly be… turned out it was the toilet. Well let’s face it, that isn’t really going to work if you’re a girl.

Now, I’ll be honest, I was probably never going to be a pilot anyway, I still haven’t learnt to drive yet (I’d hoped cars would all be driverless by now) but it’s a reminder that if things aren’t designed by women, they probably won’t work for women.

Technology needs to be designed, made and delivered by a diverse group people

Technologies like AI are reshaping the way the world works in all sorts of ways. If that’s going to have positive social outcomes, it’s vital that businesses who are using AI do so in a way that ensures women and minority groups are represented.

If algorithms are trained on data that is incomplete or contains historic prejudice against particular groups, it will learn those unfair biases and incorporate them into its decisions, entrenching existing unfairness and barriers. Taking action to reflect diversity and inclusion in teams and data will lead to social benefits and makes good business sense too. Businesses who prioritise fairness and inclusion are more likely to create algorithms that make better decisions, giving them the competitive edge.

At the CBI we’re keen to help our members adopt technology well, in a way that works for everyone.

Business leaders can take action by actively championing diversity, and making sure the data they use is representative

Actively champion diversity:

  • Develop stretching targets and metrics to work towards fairness, and continue to collect data on, monitor, and adjust them.
  • Leaders should champion diversity and make it a shared priority across their business.
  • Question pre-existing practices: For example, questioning interview panels or candidate shortlists that have the same type of person will lead to more diverse teams, which have the range of perspectives that can design more inclusive technology.

Make sure your data is representative:

  • Use available technical tools to test and monitor algorithms and datasets such as IBM’s Fairness 360 Kit, an open-source toolkit containing metrics to check for unwanted bias; and Google’s What-If Tool, which lets users try five different mathematical types of types of fairness, as well as allowing them to analyse the performance of their AI models with new data or datasets.
  • When data is incomplete or contains historical unfair bias, take steps to make it more inclusive, and collect new data with AI in mind. Data that is incomplete or contains unfair bias can be cleaned. Businesses are also taking steps like collecting more representative data to improve the inclusiveness of their datasets. Businesses should also think about potential AI use cases you may have in a year or two to help define the fresh data you would like to collect.

CBI members can read more about putting AI ethics into practice in our member guide.

The CBI’s Women in Technology Group exists to help ensure women’s voices are heard

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The members of the CBI’s Women in Tech group at our Annual Conference, 2019

Not only do diverse voices need to be heard in the development of technology, but in they also need to be heard in the development of the policy that sits around that technology. Our Women in Technology group exists to make sure the brilliant women in our membership have a specific chance to feed into our policy work; share best practice from their businesses; and build a network to make sure we’re joined up with others campaigning in this space.

We’re committed to increasing the diversity of people we represent as well. Later this year we will launch a BAME in tech network, with similar aims.

Continue reading “Why the world needs more Women in Tech”

Moving from ambition to action on digital infrastructure

Last week I had the pleasure of speaking at the Parliament and Internet Conference, to discuss how the UK can meet its ambitious targets to get gigabit capable broadband into every home and business across the UK by 2025.

The UK should lead the way the fourth industrial revolution in the same way we did in the first. To get there, connectivity matters. It matters for levelling up too.

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I grew up in Shropshire, the birthplace of the first industrial revolution, and it was the West Midlands that powered forward that incredible period of growth and innovation. There were multiple factors that supported the industrial revolution in the region, including talented people creating new technologies, and access to abundant raw materials, but one thing has always struck me as important, and that’s the role of the canals.

Before the canals were built, people had to transport their goods by mule or packhorse. Can you imagine trying to transport delicate consumer goods like ceramics by mule? And yet a little further north of Shropshire, in the Staffordshire potteries, they were having to do just that. The building of the canals transformed businesses’ abilities to transport large volumes of goods quickly and safely. Without this connectivity, the industrial revolution may have happened elsewhere. It certainly wouldn’t have happened as quickly.

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Now we sit at the start of the fourth industrial revolution, and it’s no longer the waterways that will power new technologies and deliver new products and services. It’s digital connectivity.

The good news is that government has a big, bold ambition to deliver gigabit capable connectivity to every household and business around the country by 2025. The impact of this could be incredible:

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The clock to 2025 is ticking. To hit this big, bold target on time there must be an urgent move from ambition to action.

Action is needed in four key areas:

  • Legislation: positive action has already been taken with the Telecoms Infrastructure Bill enabling access to tenant properties, but legislation needs to pass this year if the UK is to hit the 2025 target. And further policy change will be needed on planning laws for 5G and mandating access to new builds.
  • Investment: the £5bn that has already been announced to connect the hardest-to-reach areas is a huge step forward to help support the tens of billions the private sector will invest. his £5bn must be used well to focus on the areas that are most difficult to connect to prevent overbuild. Furthermore, government should review business rates to incentivise business investment and – at least – roll over existing full fibre business rates exemptions, which are set to run out in 2022.
  • Talent: getting new connections in the ground requires people. Lots of people. Tech UK estimate 13,000 engineering visits per day will be needed to hit the 2025 target. Businesses have a role to play here, in training their people up, but there is also a need to ensure that the new immigration system supports the technology sector.
  • Demand: this can’t just be about building new connections. None of the above matters without uptake. Businesses and households also need to take up and invest in their own connectivity. From a business perspective this should be linked with the broader push to invest in innovation adoption and can learn from initiatives such as Be the Business and Business Basics.
Continue reading “Moving from ambition to action on digital infrastructure”

It’s Time to Be More Magpie on the UK’s approach to innovation

This blog is called Be More Magpie because it refers to the CBI’s campaign to encourage businesses to adopt tried-and-tested technologies and management practices that other businesses are already using.

But policymakers can Be More Magpie too. As I mentioned last week, the international example tells us that there is lots the UK can learn from other countries on how to raise the level of innovation. One area where the government has already signalled it would like to do this, is in the creation of a US-style ARPA agency.

It’s great to see the idea of a UK ARPA model being explored. The CBI called for this back in 2006 to help position the UK as a destination for innovation and to support the development of radical new ideas. Fast forward to 2020 and there are three key things our members tell us will help UK ARPA work well:

Number one is a long-term funding model:

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One of the strongest levers government has at its disposal when it comes to spurring private sector innovation isn’t the money (though that does matter) it’s the signals it creates with where it choses to invest and how long it choses to invest for. The US model exemplifies this, DARPA has existed for 60 years and receives over $3bn per year in funding.

Despite its potential benefits, high-risk research is costly, and the patchy funding can serve as a deterrent to businesses wanting to undertake this research. The £800 million proposed over five years by the government to fund the new agency represents a good starting point. If the first five years are successful, this funding would need to be put on a sustained footing. Former Universities Minister David Willetts recently suggested that funding would need to be around £200 million a year.

Second, set ARPA up to take risks:

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The key benefit of the US ARPA model is its ability to encourage high risk research, which wouldn’t happen if it was left to the market alone. The US ARPA model achieves this through two things: independence and a customer relationship.

  • On independence, the US agency operates outside of the traditional oversight structures of departments. This independence should be mirrored in the UK as it allows the agency to pursue high-risk innovation the market wouldn’t otherwise do, and supports its delivery by removing institutional restraints. One model could be that the Cabinet Office sponsors the agency, and contracts out the operation of ARPA to the public sector.
  • On the customer relationship, ultimately the reason companies develop new products and services is because they expect a market for them, and government can create markets through its procurement approach. Much of the success of the ARPA programs in the US can be attributed to the implementation of an “extended pipeline” model, where government departments – particularly the department of defence – act as lead customers. In the UK, government departments could play a similar customer role.
  • The NHS has significant buying power and NHS X – with its mission to drive forward the digital transformation of health and social care – could be a key customer.
  • Energy is another area that could benefit, particularly given the Government’s Net Zero commitments. Using the agency to develop new carbon capture and carbon storage technologies could support the UK’s aim to be a world leader in addressing climate challenges.
  • Businesses can also be customers for new ideas coming out of an innovation agency. As new technologies are being created and developed by UK ARPA businesses should be offered the chance to invest in them. This investment could take the form of financial, technical or marketing support. Establishing a dedicated commercialisation team could support with this.

Finally, design ARPA with the business community in mind:

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This means creating a business-focused brand; having a good framework for IP agreements and designing funding that helps businesses make the case to invest.

  • A business-focused brand: The agency’s brand will need to be bold if it is to compete internationally and attract the brightest and best. To do this government must be ambitious with its marketing of UK ARPA, starting with identifying a new name and mission statement which inspires and encompasses its purpose and vision.
  • Design funding in a way that works for business: The US ARPA model can give funding in ten-year increments (with three year “gates” where a project needs to demonstrate its delivering). This longevity of funding pots can help businesses make the internal case to invest in risky R&D.
  • Get IP right: Intellectual property agreements can sometimes be a barrier to private sector investment and collaboration. The agency will need to develop a model that gives businesses and researchers the confidence to share ideas while maintaining critical IP.
Continue reading “It’s Time to Be More Magpie on the UK’s approach to innovation”

About the author

Felicity Burch is the Director of Innovation and Digital at the Confederation of Industry (CBI). The CBI is the UK’s most influential business organisation.

Felicity leads the CBI’s policy work to create the conditions that enable businesses to come up with new ideas, invest in research and development (R&D) and adopt new technologies.

Prior to taking her current role, she spent two years as the Head of Innovation and Digital, where she led the CBI’s successful campaign for the government to commit to a target for R&D expenditure, as well as agenda-setting work on technology adoption. Felicity’s first role at the CBI was as the Principal Policy Adviser on labour markets, where she was responsible for the CBI’s agenda on pay and the future of work.

Felicity’s background is in Economic Policy, focused on business growth. Before the CBI, she was Senior Economist at EEF, the manufacturers’ organisation. In this role she led the development of their innovation policy and industrial strategy work and delivered a breadth of economic and industrial trends research. She has also worked on Experian’s Economic Policy team, with a focus on regional growth.