10 p107a uk innovation survey 2009 science and innovation analysis

8/7/2019 10 p107a Uk Innovation Survey 2009 Science and Innovation Analysis

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UK INNOVATION SURVEY 2009

Science and Innovation Analysis

DECEMBER 2010


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UK Innovation Survey 2009

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ContentsContents ................................................................................................................................... iList of Tables and Figures .................................................................................................... iiiChapter 1. Introduction .......................................................................................................... 1

1.1 Introduction ..................................................................................................................... 11.2 Innovation Concepts ....................................................................................................... 11.3 The UK Surveys ............................................................................................................. 21.4 The Innovation Survey 2009........................................................................................... 21.5 Main Findings ................................................................................................................. 3

Chapter 2. Indicators .............................................................................................................. 52.2 Innovation Indicators ...................................................................................................... 72.3 Goods, Services and Process Innovation..................................................................... 162.4 Business strategy and practices ................................................................................... 222.5 Organisation, management and marketing .................................................................. 232.6 Context for Innovation .................................................................................................. 262.7 Constraints on innovation ............................................................................................. 372.8 General Economic Information ..................................................................................... 40

Chapter 3. Panel Analysis ................................................................................................... 443.1 Introduction ................................................................................................................... 443.2 Panel Demographics .................................................................................................... 443.3 Innovation activity ......................................................................................................... 453.4 Product and process innovation ................................................................................... 513.4 Abandoned and incomplete innovation ........................................................................ 553.5 Innovation investments ................................................................................................. 563.6 Strategic Innovation ...................................................................................................... 57


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3.7 Barriers to innovation ................................................................................................... 583.8 Context for innovation .................................................................................................. 60

Annex A: Technical details of the UK Innovation Survey 2009 ....................................... 63

Division ............................................................................................................................... 64


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List of Tables and Figures

Tables

Table 2.1 Business objectives (percentage of all firms rating high) .......................... 6Table 2.2: Percentage of enterprises who were innovation active, by firm size andtype of activity ............................................................................................................. 8Table 2.3: Percentage of enterprises who were innovation active, by sector and typeof activity................................................................................................................... 11Table 2.4: Percentage of enterprises who were innovation active, by GOR and typeof activity................................................................................................................... 11Table 2.5: Percentage of enterprises that were wider innovators, by firm size andtype of activity ........................................................................................................... 23Table 2.6: Innovation determinants by sector (percentage of innovative firms ratinghigh in each sector) ................................................................................................ 29Table 2.7: Sources of innovation information rated high (percentage of strictlyinnovative enterprises) ............................................................................................. 31Table 2.8: Types of co-operation partners by GOR (percentage of strict innovators) 33Table 2.9: Types of co-operation partners by sector (percentage of strict innovators)................................................................................................................................. 35Table 2.10: Formal protection methods by sector (percentage of all enterprises ineach sector) .............................................................................................................. 37Table 2.11: Reasons for not innovating (percentage of non-innovative firms) .......... 37Table 2.12: Innovation constraints (percentage of innovation active firms) .............. 39Table 2.13: Innovation constraints (percentage of non-innovation active firms) ....... 40Table 2.14: Shares of employees that hold a degree in Science or Other subjects bybusiness size ............................................................................................................ 42Table 3.1:Panel demographics (percentage of businesses) ..................................... 45Table 3.2: Percentage of enterprises who were innovation active in each surveywave, by type of activity ............................................................................................ 46Table 3.3: Persistence of innovation activity in industry (percentage of firms in eachsector) ...................................................................................................................... 50


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Table 3.4: Transitions between innovation activity status (percentage of firms) ....... 50Table 3.5: Persistence of product and process innovation (percentage of all firms) . 54Table 3.6: Percentage of enterprises who had abandoned or incomplete innovationprojects in each survey wave. ................................................................................... 55Table 3.7: Percentage of enterprises who engaging in activities related to innovationin each survey wave. ................................................................................................ 56Table 3.8: Persistence of engaging in activities related to innovation (percentage ofall firms) .................................................................................................................... 57Table 3.9: Percentage of wider innovators in each survey wave .............................. 57Table 3.10: Barriers to innovation (percentage of all firms rating high, medium orlow) ........................................................................................................................ 59Table 3.11: Barriers to innovation by innovation activity (percentage of all firms ratinghigh, medium or low) ......................................................................................... 60Table 3.12: Barriers to innovation by innovation activity (percentage of all firms ratinghigh) ....................................................................................................................... 60Table 3.13: Effects/deciding factors (percentage of all firms rating high) ............... 61Table 3.14: Reasons for not innovating (percentage of all firms rating high) ......... 62Figures

Figure 2.1: Geographic markets by firm size (percentage of all respondents) ............ 6Figure 2.2: Types of product innovation (percentage of product innovators) .............. 8Figure 2.3:Percentage of innovation activity by sector ............................................ 10Figure 2.4: Innovation active enterprises 2007 vs. 2009 by firm size (percentage of allenterprises) ............................................................................................................... 12Figure 2.5: Innovation investment activities .............................................................. 13Figure 2.6: Innovation expenditure in 2008 (proportion of total expenditure) ............ 14Figure 2.7: Innovation expenditure in 2008 by business size (proportion of totalexpenditure in each size) .......................................................................................... 16Figure 2.8: Development of Goods and Services (product innovators only) ............. 17Figure 2.9: Development of processes (process innovators only) ............................ 18Figure 2.10: Novel product innovations (percentage of product innovators) ............. 19


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Figure 3.10: Product innovation by GOR .................................................................. 53Figure 3.11: Process innovation by GOR ................................................................. 53Figure 3.12: Ongoing or failed projects with product or process innovation ............. 55

Figure 3.13: Persistence of wider innovation ............................................................ 58


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Chapter 1. Introduction

Innovation will be one of the key drivers of the private sector ledeconomic growth that Britain so urgently needs is the innovationpolicy message from the Department for Business Innovation andSkills (BIS). The UK Innovation Survey continues to provide thedata for the indicator and innovation measurement framework tomeasure performance and feeding into the Annual InnovationReport1

1.1 Introduction

and policy related research and analysis.

This report presents some results from the UK Innovation Survey 20092 (UK IS 2009)and aims to be a useful reference for policy and research purposes providing someinsights into the innovation process including: the factors that determine why firmsinnovate and how they innovate; the information sources and partners they use; themethods they use to protect their innovations; and the barriers they come across.Some particular results have been drawn out, making comparisons with earlier yearswhere appropriate. Most analyses are split by size or industrial/commercial sector.Regional characteristics are predominantly determined by the aforementioned, so areless extensively discussed here. More detailed results including splits by region, firmsize and sector (as used in the sampling methodology) for all the surveyquestions,are in statistical annexes which can be found on the Departments website3

More details on innovation policy can also be found on the Departments website andwill not be discussed further here

.

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1.2 Innovation Concepts

.

Innovation surveys carried out in the UK and in many other countries round the worldfollow generalguidelines set out in an OECD publication known as the Oslo manual(OECD 2005)5

Product innovation - bringing to the market or into use by business, new andimproved products, including both tangible goods and the provision of

. This offers suggestions on the conduct of innovation surveys,including statistical procedures and a review of the range of concepts that falltogether under the umbrella term innovation. These include:

1http:/ / www.bis.gov.uk/ policies/ innovation/ annual-innovation-report 2 Details about UK innovation surveys and research can be found here htt p:/ / www.bis.gov.uk/ policies/ science/ science-innovation-analysis/ cis3 http:/ / www.bis.gov.uk/ assets/ biscore/ science/ docs/ u/ 10-p106-uk-innovation-survey-2009-statistical-annex.xls

4 http:/ / www.bis.gov.uk/ policies/ innovation5 http:/ / www.oecd.org/ dataoecd/ 35/ 61/ 2367580.pdf


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services. The degree of innovativeness is shown by the distinction betweenproducts new just to the business or which are also new to the market.

Process innovation, significant changes in the way that goods or services are

produced or provided, again differentiating between processes new to thebusiness only or also new to the industry.

Categories of innovation directed investment such as: R&D, capital goods andsoftware acquisition, design activity, for implementing current innovations ordirected to future product or process changes

Management related changes, sometimes referred to as soft or widerinnovation, including strategic changes to the organisation of a business or itsfunctions, in order to achieve gains in competitiveness through efficiency orservice improvements.

The manual also summarises as a guide to survey principles, other elements of theinnovation system, especially the ways that knowledge stocks and flows serve asvital innovation inputs. The UK and other European innovation surveys, knowncollectively as the Community Innovation Survey, take a broadly common form andask mostly the same questions, enabling some degree of cross nation comparisons,within the limits of differing national systems, institutions and economic histories.

1.3 The UK Surveys

This is the sixth of these surveys in the UK. These results, as with previous iterations,

provide a means of tracking innovation achievement and progress. The indicators arealso applied in reporting such as in the Annual Innovation Report. The survey dataand the extensive body of analysis using them, form part of the innovationmeasurement framework alongside other indicators such the Innovation Indexrecently developed by NESTA. The survey data is a major resource for research intothe nature and functioning of the innovation system and for policy formation. It isused widely across government, and by the research community. It also has theadvantage of being linked to other business data sources, such as BusinessEnterprise Research and Development (BERD), and has a longitudinal componentmaking it an especially valuable resource. The UK Survey User Group, managed bythe Department, continues to grow and maximise the use of the data resulting in a

significant number of research papers.

1.4 The Innovation Survey 2009

A selection of results from the latestUK survey was published in the Economic andLabour Market Review in April 20106

6 http:/ / www.statistics.gov.uk/ elmr/ 03_10/ downloads/ ELMR_Mar10_Robson.pdf

. As with previous publications, this volume ismostly concerned to present factual material from the survey in a form that isaccessible and useful to a range of stakeholders, including policy makers, analysts,researchers and business.


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The 2009 survey was the second to be conducted on the new biennial survey cycle.As a result of the increased frequency, nearly half of the achieved sample arecommon to both the 2009 and the 2007 surveys, referred to as the Panel and 4thousand businesses are common to the last 3 surveys (2009, 2007 and 2005).

Section 1 and 2 provide an analysis of this rich data set including direct comparisonsover time.

This volume also includes some general comparisons between the results of the2009 surveys and the previous iteration in 2007 and occasionally 2005. The sectoralcoverage of the 2009 remained unaltered from the previous survey. The coverage ofthe creative industries widened from the 2005 survey, but otherwise the sampling hasremained constant over the last three survey iterations. Throughout the report, inorder to make valid like-for-like comparisons with surveys conducted prior to 2007the additional sectors are excluded from the analysis. As a result the indicator valuesused in comparisons will not match other data published in this volume and existing

publications. See the Technical Annex for more details.

The layout of the 2009 survey questionnaire differs in parts from previous surveys.The order of questions about to innovation activities and strategic or wider innovationwas changed. Respondents were asked about innovation activities during the period2006 to 2008 and then about any wider innovation behaviour, previously includedtowards the end of the questionnaire. New routing and the removal of a filterquestion before the question on cooperation has had a significant impact on theresults. This prohibits a direct comparison of some of the results from a sub-sectionof the questionnaire (named Context for Innovation) with previous findings. Otheramendments are highlighted at the relevant results and discussion points.

1.5 Main Findings

Several important features emerge from this dataset. Some headline results for thelatest survey are:

There were increases in the shares of firms with a product innovation and anincrease in the shares of firms with a process innovation during the 3 yearperiod 2006 to 2008 compared with the period 2004 to 2006

Nearly half of product innovations and a third of process innovations were

leading edge or novel

Smaller businesses are narrowing the gap with large firms on levels ofengagement across a range of innovation related behaviours

More firms were cooperating on their innovation projects than has previouslybeen recorded7

The structure of the rest of the report is as follows.

.

7 The numbers of firms cooperating may be a questionnaire variation effect.


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Chapter 2 summarises a selection of results from the many variables and sets ofrelationships between them, concentrating on the shares of business in a range ofsize groups and industrial sectors and UK regions, who are engaged in innovationrelated activities including networking with external sources. The results are

presented in the order they are presented in the layout of questionnaire.

Chapter 3 brings out some properties of the panel as defined briefly above. The mainindicators presented in Chapter 2 are revisited for the 4000 businesses thatresponded to the 2009, 2007 and 2005 surveys together with investigation of thechanges over time.


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Chapter 2. Indicators

This Chapter provides summaries of the main survey results bymeans of a range of indicators, giving a broad picture of innovationin the UK. The survey sought information on the nature of thebusiness activities involved in innovation as well as the effects ofproduct and process innovation on market position, internalprocesses and costs. There is also some inquiry into the nature ofdemand for new and improved products and into the linkages,through knowledge acquisition and co-operation, with otherenterprises and institutions such as the research base. The results

are presented mainly as shares of businesses grossed up tonationally representative levels by appropriate survey weights.(Technical details of the UK Innovation Survey are provided inAnnex A.)

2.1 General Business Information

2.1.1 Geographic markets

The survey starts off by asking respondents for information on the markets in whichthey operate. As expected, regional markets dominate for small and medium sizedenterprises (SMEs) with large firms primarily operating in national markets. But,perhaps less expected is that similar proportions of large and medium sized firms (35per cent) operate in European markets while around a quarter of medium and largefirms are selling outside of Europe. Figure 2.1 depicts market engagement by firmsize.


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Figure 2.1: Geographic markets by firm size (percentage of all respondents)

0% 20% 40% 60% 80% 100%

All other

countries

European

counties

UK national

UK regional

All

Large (250+)

Medium (50-249)

Small (10-49

employees)

2.1.2 Business objectives

The 2009 survey introduced a new question to cover how innovation is embedded inbusiness strategies. Respondents were asked How important were each of thefollowing objectives to this business? and to rank four objectives from highimportance to not applicable. Tabled below are the four objectives and the shares ofbusinesses that ranked them as of high importance by businesses size.

Table 2.1 Business objectives (percentage of all firms rating high)

Objectives All Small Medium Large

Profit margin on sales 59.3 58.1 66.6 60.3Growth in sales/turnover 48.8 48.1 52.3 52.2

Growth in exports 5.2 4.5 8.5 9.4

Market share in UK 11.6 10.0 18.5 25.9

Profit margins on sales was the most important objective for all firms, but moreso for medium sized firms


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Growth in sales and turnover was ranked important by half of all respondents,regardless of business size.

Around a quarter of large firms were motivated by market share compared with a

fifth of medium and a tenth of small firms.

Growth in exports was ranked high by less than ten per cent of all firms

2.2 Innovation Indicators

Before we consider responses on innovation behaviour, context and linkages weintroduce the important concept of an innovation active firm used throughout thereport and defined as a business that has engaged in any of the following:

Introduction of a new or significantly improved product (good or service) or

process for making or supplying them.

Innovation projects not yet complete, or abandoned.

Expenditure in areas such as internal research and development, training,acquisition of external knowledge or machinery and equipment linked toinnovation activities.

2.2.1 Changes over time 2009 and 2007 surveys

From 2007, the survey frequency changed from a four yearly to a two yearly cycle.

These results are the second set of the biennial running of the survey.

On the definition above, some 58 per cent of UK enterprises were innovationactive over the 2006-2008 period

On comparison with the previous survey, this represents a fall of five percentagepoints when in 2007, 63 per cent of UK enterprises were innovation active.

The shares of product and process innovators were 24 per cent and 13 per centrespectively, both higher than recorded in the 2007 survey.

2.2.2 Innovation activity

Innovation takes place through a wide variety of business practices and a range ofindicators can be used to measure its level within the enterprise or in the economy asa whole. These include the levels of effort employed (measured through resourcesallocated to innovation) and of achievement (the introduction of new or improvedproducts and processes). The survey also includes coverage of strategic or non-technological Innovation also referred to as wider innovation. These include majorchanges in management practices, business structure, organisation or marketingstrategy. Table 2.2 shows the shares of businesses by size of enterprise that fall intothese categories.


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2.2.3 Sector variations

The share of enterprises within broad sectors (defined at Annex A) also varies bytype of innovation activity. Table 2.3 shows the percentages under each of the

innovation categories. Despite increased levels of product and process innovation,overall the share of innovation active firms was some five percentage points lowerthan in UK IS 2007. This was a result of fewer firms engaging in innovation relatedinvestment.

Manufacturing sectors were the most innovative with shares of engineering-based firms performing strongly over all the innovation measures.

A higher share of knowledge-intensive services businesses revised theirbusiness structure or practices between 2006-2008.

At 50 per cent, the primary sector records the lowest share with innovativepropensity. However, nearly one fifth of these businesses introduced a newprocess over the period. Of these, half were new to the industry.

Figure 2.3 has a split of sector behaviour over the last two survey periods. Here wesee that all of the broad sectors below have lower shares of innovation activity thanin 2007. These differences over time and between sectors reflect persistentinnovation patterns and product and process renewal and replacement cycles acrossindustries.

The gap between the most and least innovative sectors is closer in the 2009 survey,

perhaps indicating a lower limit or a minimum level of innovation is always necessary a basal rate of innovation?


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Figure 2.3:Percentage of innovation activity by sector

% 20% 40% 60% 80% 100%

Other services

Primary sector

Construction

Retail & distribution

Engineering-based

Manufacturing

Other Manufacturing

Knowledge-intensive

services2007

2009

2.2.3 Regional Dimension

These summary indicators can also be analysed to show the distribution ofinnovation across the countries and regions of the UK. The regional pattern is

variable over time. On this occasion, as also seen in the sectoral split, the lowest andhighest regional recordings are closer than in 2007 ranging from 55 per cent ofenterprises in Northern Ireland and Scotland to 63 per cent in South East England.The general explanation of the regional pattern is that of differences in industrialcomposition (including, therefore, business size) across the regions and the effect ofthe industry specific product and process life-cycles. One example is London whereoverall innovation activity was a relatively low 56 per cent of firms yet a comparativelylarge share of London businesses recorded forms of managerial and marketinginnovations (29 per cent). London also had the largest share of ongoing orincomplete innovation projects over the period at seven per cent.


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Table 2.3: Percentage of enterprises who were innovation active, by sector and type of activity

Type of activityPrimarysector

Engineering-based

manufacturing

Othermanufacturing

Construction

Retail &distributi

on

Knowledge-intensiveservices

Other

Innovation active 49.9 71.1 69.5 51.3 55.3 63.8 52.4

Product innovator 20.9 34.4 34.0 12.7 20.7 31.3 20.1

Process innovator 18.0 17.1 18.9 6.8 10.5 17.4 10.2

Abandoned innovationprojects 2.1 7.1 6.9 0.8 1.8 5.8 2.3

On-going innovationprojects 5.6 11.6 8.8 2.1 4.0 9.8 2.9

Activities related toinnovation 47.5 68.4 65.8 49.4 51.8 60.0 49.3

Table 2.4: Percentage of enterprises who were innovation active, by GOR and type of activity

Type of activityNorthWest

Yorkshireand TheHumber

EastMidlands

WestMidlands

East ofEngland

LondonSouthEast

SouthWest

Wales ScotlandNorthernIreland

NorthEast

Innovation active 56.3 60.7 55.5 58.7 59.1 55.8 63.3 57.8 58.6 54.8 54.8 59.5

Product innovator 22.7 24.1 24.5 25.1 23.6 22.9 27.8 25.6 24.4 21.3 16.8 21.0

Process innovator 10.6 13.1 11.9 12.9 13.7 13.2 14.2 11.2 13.1 12.5 10.6 11.7

Abandonedinnovationprojects

2.5 2.8 3.2 2.9 4.5 5.2 4.0 3.1 3.3 2.5 2.7 3.1

On-goinginnovationprojects

4.9 4.5 5.7 4.4 6.5 6.9 6.6 5.5 4.4 5.3 4.3 4.3

Activities relatedto innovation

53.0 57.1 50.0 55.5 57.3 53.5 59.9 52.6 55.6 53.1 53.2 56.0


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2.2.4 Changes over time 2009 and 2007 surveys

The following two figures show comparisons with the previous survey in 2007,covering innovation activities in 2004-2006.

Figure 2.4: Innovation active enterprises 2007 vs. 2009 by firm size (percentageof all enterprises)

0%

20%

40%

60%

80%

100%

Small (10-49 employees) Medium (50-249) Large (250+)

2007 2009

We have already noted the fairly broad measure of innovation the share ofbusinesses who record innovation investment or outcomes, has decreasedacross all enterprises. Figure 2.4 above illustrates that the effect varied acrossbusiness size where for large firms (250+ employees) innovation active rates fellby 13 percentage points.

Small firms continued to innovate at fairly similar levels to the previous survey.

But, an intriguing result is that the share of medium sized firms involved in someform of innovation in 2009 is slightly higher than shares for large firms. This ispredominantly due to a higher share of medium sized business engaging in someinnovation related activities, more specifically, acquisition of computer hardwareand software and changes to marketing methods (see Figure 2.5 below).


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Figure 2.5: Innovation investment activities

0% 20% 40% 60% 80% 100%

Extramural R&D

Acquisition of external knowledge

All forms of design

Market research

Launch advertising

Advanced machinery

Changes to maketing methods

Changes to product or service design

Intramural R&D

Training

Computer hardware

Computer software

2007

2009

2.2.5 Innovation activities

The most common innovation investments during 2006 to 2008 were acquisition ofcomputer hardware followed by acquisition of computer software. Figure 2.5 showsthe comparison with the period 2004 to 2006. Most categories were reported bysubstantially fewer firms on this occasion with the exception of the numbers of firmsengaging in internal R&D activities and design. Both were fractionally higher than thelevel recorded in the previous survey.

We remarked in our analysis of UK IS 2007 that the increased level of engagement inactivities may have been a possible consequence of the extensions to the headingsfor acquisition of machinery, equipment and software and market introduction of

innovations to include specific sub categories. These results seem to suggest thatwe were capturing genuine investment behaviour culminating in an increase inproducts and processes within this survey cycle.

2.2.6 Innovation Expenditure

We attempt to quantify the level of investment in these areas by asking firms to givean approximate value of expenditure in each of the main areas for the most recentyear, in this case 20088

8 Investment analyses are notoriously variable given t he quality of responses to th is question. Any results should be used with caution.

. This question requires respondents to estimate how much of


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their total expenditure in major business areas such as capital, training andmarketing is directed towards current or future product and process innovation.

Figure 2.6 shows the breakdown of total innovation directed investments by type of

expenditure9

Figure 2.6: Innovation Expenditure in 2008 (proportions of totalexpenditure)

. Much analysis and a range of government policy initiatives arefocused on R&D, because of the breadth and depth of new knowledge it entails. Butintramural (within the firm) R&D is just one part of the overall innovation investmentpicture and accounts for around a third of relevant expenditures. Despite loweroverall levels of investment, this represents a continued investment in R&D duringless favourable economic conditions. This was also apparent from the relativelystrong 2008 Business Expenditure on R&D (BERD) figures. Extramural (contractedout) R&D accounts for 11 per cent of total innovation investment, while acquisition ofcapital including advanced equipment, computers and software, is the largestproportion at one third of all expenditure. This can be equated to acquiring embeddedtechnology including information and communications technology developments and

shows the importance to national innovation performance of the diffusion of technicalchange. Expenditure on market preparation, in connection with innovation is a farsmaller component than expected, based on earlier results from 2006, indicatingbusinesses have had to retrench on marketing and distribution expenditures whilecommitted to funding R&D along with design where shares of expenditure in 2008remained at the same level as 2006 at five per cent. Spending on innovation relatedtraining remained low.

31.4%

11.2%

32.8%

5.8%

7.1%

5.2%

6.5% Internal R&D

Acquisition of external R&D

Acquisition of capital

Acquisition of external

knowledge

Training for innovative activities

All forms of design

Market introduction of

innovations

9 Innovation investment expenditure analyses are based on data weighted by employment rather than business weights.


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This pattern shows some significant variation across business size (figure 2.7 below).Smaller firms spend a greater proportion of their innovation expenditures on

acquisition of machinery, equipment and software and a higher proportion ontraining. Sixty per cent of large firms innovation expenditures are on internal andexternal R&D.


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Figure 2.7: Innovation expenditure in 2008 by business size (proportion of totalexpenditure in each size)

0%

20%

40%

60%

80%

100%

Small (10-49

employees)

Medium (50-249) Large (250+)

Acquisition of externalR&D

All forms of design

Market introduction of

innovations

Acquisition of external

knowledge

Training for innovative

activities

Internal R&D

Acquisition of capital

2.3 Goods, Services and Process Innovation

The market or within business introduction of new or improved products (goods andservice) and the process for their production or supply, is a core innovation conceptand the national share of firms with such innovations is an important and frequentlycited indicator. This section goes behind the basic product and process innovationresults, reported in section 2.2.2 to report on the ways that these sort of innovation

are carried out and on indicators of intensity.

2.3.2 Product development

Product innovators are asked about how their products were developed. Anamended question for this survey was to distinguish between the development ofgoods and services. From Figure 2.8 below we can see that service developmentmore frequently involves external input. These findings were also uniform acrossbusiness size.


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2.3.3 Process development

Process innovation development is more of an internal affair with most developed in-house. (Figure 2.9). However, a slightly higher share of smaller firms reported using

input from other business and organisation to help develop new processes.

Figure 2.9: Development of processes (process innovators only)

25.6%

62.3%

9.2%

2.9%

This business with other

businesses or

organisation

This usiness or enterprise

group

Other businesses or

organisation

Not mentioned


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2.3.4 Novel Innovation

Figure 2.10: Novel product innovations (percentage of product innovators)

Figure 2.11: Novel process innovations (percentage of process innovators)

The intensity of product and process innovation also emerges from the survey. Oneindicator is the share of product and process innovations that are said to be new tothe market or to the industry respectively. Just under half of all product innovationswere also new to market or novel, while just short of a third of process innovationswere new to the industry (Figure 2.10 and 2.11)

Product innovators

Novel products 44%


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Figure 2.12: Novel innovation by sector (percentage of product and processinnovators in each sector)

0% 20% 40% 60% 80% 100%

Construction

Other services

Knowledge-intensive

services

Other Manufacturing


Engineering-based

Manufacturing

Primary sector

New to market

products

New to industry

processes

From figure 2.12, in most sectors10

Process innovation is more complex and likely to involve more extensive changebut, on average, around a third of process innovative enterprises were novelprocess innovators with around two fifths of process innovations in theknowledge-intensive services sector new to the industry.

, more than forty per cent of productinnovative enterprises are also novel product innovators, introducing goods orservices new to their market, rather than follower innovators, trying to catch upwith the competition, they are pro-actively keeping ahead of the competition.

Both the percentage of process innovators who introduced new processes to

their industry and the percentage of product innovators who introduced newproducts to their market increased on 2007 and are more comparable to levelsseen in the 2005 survey. Whereas we remarked last time that the 2007 resultswere similar to those from the 2001 survey.

The life cycles of goods and services and of the processes to produce themseem part of the explanation of these patterns across time.

10 There are only small numbers of primary sector firms that were product and/ or process innovators resulting in exceptionally highershares of novel innovations


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Figure 2.8: Development of Goods and Services (product innovators only)

0%

20%

40%

60%

80%

100%

This business or enterprise

group

This business with other

businesses or organisations

Other business or

organisation

Goods Services


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process change. These domains of changing the business include managementtechniques, organisational restructuring and approaches to the market place. Theinnovation surveys in 2001, 2005, 2007, and 2009 have included lines of questioningaround these important topics and this chapter brings out some of the results (mainly

from the recent survey).

The following paragraphs report the basic facts about innovation throughorganisational and management change, taken as distinct forms and also inconjunction with other forms of innovation directed activities and outcomes.

2.5 Organisation, management and marketing

2.5.1 Strategic changes

There is growing importance of service providing sectors in the economy and

increasing awareness of the role of business processes and organisation forefficiency and meeting customer requirements. The 2009 UK IS seeks to identify thenumber of businesses that have undertaken distinct and significant changes inpursuit of competitive advantage, under the heads of Organisation, AdvancedManagement Techniques, and Marketing strategy. The revised survey layoutpositions these managerial forms of innovation alongside traditional product andprocess innovation enquiries.

Overall, 27 per cent of enterprises (Table 2.5) adopted one or more such changesduring 2006 to 2008. As expected, the share of strategic innovators increases withbusiness unit size, with 39 per cent of large firms reporting one or more types against

25 per cent of smaller firms.

However, these proportions are slightly lower than the levels during 2004 to 2006.Shares of larger firms engaging in these practices have fallen and are nearer thelevels of medium sized businesses.

Table 2.5: Percentage of enterprises that were wider innovators, by firm sizeand type of activity

Type of activity All Small Medium Large

Wider innovator 26.5 24.5 36.5 39.0

New or significantly changed corporate strategy 12.4 11.4 17.0 19.6

New management techniques 10.1 8.9 15.6 19.3

Major changes to organisational structure 16.4 14.8 23.4 27.5

Changes to marketing concept or strategy 15.7 15.0 19.8 18.3

During 2006 to 2008 major changes to organisational structure along withchanges to marketing concept and strategy were the most frequently adoptedform of strategic innovation and the chart below (Figure 2.15) shows that theknowledge-intensive services had the highest shares of businesses engaging in

these innovative practices.


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Changes to marketing concepts or strategies are implemented by a larger shareof smaller firms but this form of innovation was least popular amongst largebusinesses.

Figure 2.15: Firms with changes to organisational structure or marketingconcepts by sectors

0% 20% 40% 60% 80% 100%

Construction


Other services

Other Manufacturing

Engineering-based

Manufacturing

Primary sector

Knowledge-intensive

services

Major changes to

organisational structure

Changes to marketing

concepts or strategies

2.5.2 Intensity of managerial change

It is clear from the results in Table 2.5 above that firms often combine forms ofstrategic innovation and a simple indicator of the intensity of managerial change is acount of the number of types adopted and the combinations that are favoured. Figure2.16 shows the count measure, based on those with some form of strategicinnovation.


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The intensity of innovation can also be measured through the shares of businessturnover due to different degrees of product innovation

Figure 2.13: Distribution of turnover from product innovation by business size

(product innovators only)

0%

20%

40%

60%

80%

100%

All Small (10-49

employees)

Medium (50-249) Large (250+)

Products that were significantly improved

Products new to business but not new to market

Products new to the market

The shares of innovative sales are marginally higher for smaller firms, reflectingtheir smaller range of products.

Small firms attributed six per cent of their turnover in 2008 to novel productinnovations they had introduced during 2006-08.

Across all firm sizes, around 20 per cent of turnover was reported to be in novel,

new or improved products.


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Figure 2.17: Strategic innovation combinations (wider innovators only)

0%

20%

40%

60%

80%

100%

Corporate

strategy

Management

techniques

Organisation

change

Marketing

strategies

Corporate strategy

Management techniques

Organisation change

Marketing strategies

Organisational change was the method most used in combination with any of theothers. Over 60 per cent of businesses also re-organised and restructured whenthey adopted new management techniques or a new corporate strategy.

And, this tended to be combined with similar proportions adopting a newmarketing strategy.

2.6 Context for Innovation

Another relevant distinction used in the following results is what we have termed astrict innovator. These businesses are defined as having engaged in any of the

following:

Introduction of a new or significantly improved product (good or service) orprocess for making or supplying them.

Innovation projects not yet complete, or abandoned.

Engaged in a managerial or wider form of innovation

The next section of the questionnaire took strict innovators through a series ofquestions on factors influencing their innovation behaviour, information sources

utilised and any partners they collaborated with.


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Table 2.6: Innovation determinants by sector (percentage of innovative firms rating high in each sector)

DeterminantsPrimarysector

Engineering-based

manufacturing

Othermanufacturing

ConstructionRetail &

distribution


Other

Increase range of goodsor services

35.3 38.7 43.3 23.1 40.8 38.9 31.5

Entering new markets 32.3 38.3 33.1 21.1 27.1 31.1 22.8

Reduce environmentalimpact

30.8 18.1 22.3 25.4 17.6 12.2 19.4

Replace outdatedproducts or processes

27.1 26.6 24.9 18.6 19.0 18.5 23.4

Increase market share 32.3 36.6 32.9 21.4 35.2 32.9 31.3

Improve quality ofgoods or services

48.1 56.1 51.5 44.7 52.9 51.1 49.4

improve flexibility forproducing goods orservices

26.3 34.8 30.1 24.4 23.8 25.8 21.8

Increase capacity forproducing goods orservices

26.3 30.4 25.0 23.7 21.3 20.5 22.8

Reducing costs per unitproduced or provided

30.1 41.0 40.7 23.7 31.0 21.8 23.5

Improve health andsafety

38.3 27.8 26.1 41.9 20.8 12.1 24.8

Meet regulatoryrequirements

37.6 32.0 29.0 37.2 29.5 30.7 31.7

Increase value added 36.8 38.9 38.9 30.8 34.5 39.4 33.6


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Across all sectors product orientated factors dominated.

Engineering based manufacturing firms tended to cite all factors as having ahigher importance than the other sectors apart from health and safety andregulatory factors, which are significant drivers of the construction sectorsinnovation.

Improving quality of goods and services was a highly motivating factor for aroundhalf of all businesses in all sectors

Reducing environmental impact was more relevant to the primary sector followedby the construction sector.

2.6.3 Linkages in the system

A fruitful way of thinking about the economics of innovation is in terms of a nationalsystem, where innovators and the external environment, including other enterprises,institutions and the business infrastructure are linked by flows of knowledge or bycollaboration in research or other forms of joint innovation. Much analysis haspointed to the effectiveness of the collaborative mode in achieving innovationobjectives where economic conditions and the absorptive capacity of the businessesinvolved are appropriate. Here we review the results on the broader patterns ofinformation flows and collaborative arrangements.

2.6.4 Sources of information

A wide variety of sources of information were included in the survey form and mostwere quite widely accessed with overall proportions of businesses using all forms ofinformation sources higher than recorded in UK IS 2007. It seems this ispredominantly driven by the increased value SMEs, especially smaller firms, areplacing on all information sources. In contrast, there was a decrease in the valuelarge firms placed on all but two of the information sources. Overall, market sourcessuch as clients and customers and internal sources (within their enterprise group)were rated as the most important source of information for innovation. Earlier surveyresults are consistent with these findings indicating businesses rely on their own

experience coupled with information from suppliers, customers and clients. The leastfrequently cited were institutional sources. Small firms appear to be placing morevalue on Conferences, trade fairs and exhibitions and professional and industryassociations than firms with fifty plus employees.


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Table 2.7: Sources of innovation information rated high (percentage ofstrictly innovative enterprises)

Source of information All Small Medium Large

Clients or customers 45.8 45.6 46.0 49.7

Within your business or enterprise group 41.4 40.2 45.2 49.4

Suppliers of equipment, materials, services or software 23.3 24.2 19.6 22.1

Competitors or other businesses in your industry 18.9 19.1 18.0 19.9

Technical, industry or service standards 11.2 11.2 10.8 13.4

Professional and industry associations 9.7 10.5 6.7 8.5

Conferences, trade fairs, exhibitions 7.1 7.3 6.5 4.8

Consultants, commercial labs, or private R&D institutes 4.7 4.8 4.2 6.5

Scientific journals and trade/technical publications 4.3 4.7 2.7 4.1

Government or public research institutes 3.4 3.6 2.3 3.5Universities or other higher education institutions 2.9 2.9 3.2 2.4

2.6.5 Cooperation

A range of studies have indicated that cooperation arrangements can enhanceinnovation and deliver improved businesses performance. There is significant policyinterest in deriving economic and social benefits from the outputs of the world rankingUK research base. This can, in some circumstances, be enabled through direct co-operation between business and HEIs, as well as through other forms of knowledge

transfer.

Enterprises that innovated in the strictest sense are asked whether they havecooperation arrangements11

A large proportion of these firms collaborated on their innovation projects during thelatest survey period. Nearly three fifths (59 per cent) of all strictly innovativeenterprises had co-operation arrangements. A direct comparison with the previoussurvey is not possible, due to amendments to the survey question, but it seems

reasonable to say, questionnaire changes aside, that a higher share of firms arecollaborating for innovation The most frequent partners for co-operation were clientsor customers (45 per cent of strict innovators, see Figure 2.19). Around 15 per centof innovators included universities among their partners.

and with what type of cooperation partner and theirlocation. The information tabled below shows the shares for each type of cooperationpartner.

11 Changes to the routing within the 2009 questionnaire, including the removal the filter question on cooperation did your business

cooperate on any innovation pr ojects Y/ N is likely to have contr ibuted to the increased shares of innovators cooperating in this r ound ofthe survey


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Figure 2.19: Cooperating partners (percentage of strict innovators)

0%

20%

40%

60%

80%

100%

Clients or

customers

Suppliers of

equipment,

materials,

services or

software

Other

businesses

with your

enterprise

group

Competitors

or other

businesses in

your industry

Consultants,

commercial

labs, or

private R&D

institutes

Universities

or other

higher

education

institutions

Government

or public

research

institutes

On the whole there was little variation by size of enterprise in the proportion ofenterprises collaborating on innovation projects and by type of partner. Although

higher shares of large firms were collaborating with other businesses within yourenterprise group and Consultants, commercial labs, or private R&D institutes.Whereas shares of SMEs that collaborate with Competitors or other businessesin your industry were higher than for large firms.

The location of partners varied more across business size groups. Perhaps notsurprisingly, larger firms collaborate more both nationally and (especially)internationally than SMEs.

At Regional level, Table 2.8 shows that the East of England had the highestshare of enterprises with some form of collaboration.

The North East of England had the highest share of collaborations with theresearch base


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Figure 2.20: Geographical distribution of cooperation partners (percentage ofstrict innovators)

0%

20%

40%

60%

80%

100%

NorthEast

WestMidlands

EastMidlands

Scotland

YorkshireandThe

Humber

SouthEast

NorthWest

EastofEngland

London

Wales

SouthWest

NorthernIreland

All UK regional All UK national All other Europe All other countries

Scotland had the highest share of business that collaborated at the regional levelfollowed by the North West and Northern Ireland.

Northern Ireland and the South East had the largest share of Europeancollaborations. London and the East of England had the largest share ofenterprises collaborating with partners outside of Europe.

As noted above, much of the regional story can be explained by sectoralbehaviour. Collaboration partners by industry are charted below. Research and

experimental design in natural science are the most collaborative sectorsampled.


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Table 2.9: Types of co-operation partners by sector (percentage of strict innovators)

Sector Any

Otherbusinesseswithin yourenterprisegroup

Suppliers ofequipment,materials,services, orsoftware

Clients orcustomers

Competitors orotherbusinesses inyour industry

Consultants,commerciallabs, or privateR&D institutes

Universities orother highereducationinstitutions

Governmentor publicresearchinstitutes

Retail &distribution

60.1 45.3 46.1 35.7 25.1 20.1 16.8 17.0

Primary sector 57.1 44.4 39.8 27.1 24.1 33.8 14.3 14.3

Other services 52.5 39.6 33.3 27.6 19.6 17.8 13.6 14.4

Othermanufacturing

63.6 46.8 43.0 26.9 16.7 17.3 14.7 10.0


61.9 47.4 36.2 30.4 20.3 17.5 15.5 14.9

Engineering-basedmanufacturing

67.6 53.1 42.6 30.6 18.7 20.8 15.4 12.1

Construction 52.2 38.2 39.4 24.8 15.3 15.8 10.6 12.1

All 59.1 44.7 39.2 29.8 20.0 18.3 14.8 14.0


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2.6.5 Innovation protection

The 2009 survey asked about the use of formal protection methods, in line with theEU harmonised questionnaire. All levels of take-up were low (Figure 2.21); with

registering a trademark the most frequently used method amongst large firms at 11per cent followed by patent applications at eight per cent. Very few SMEs reportedengaging in formal protection methods. Registering an industrial design was usedleast regardless of size. Sectoral breakdowns (Table 2.10) reveal significantdifferences with experimental design/knowledge-intensive and manufacturing sectorsindicating IP is an important tool in protecting their innovations.

Figure 2.21: Formal protection methods by size (percentage of all businesses)

0% 10% 20% 30% 40% 50%

Apply for a patent

Register an industrial

design

Register a trademark

Produce materialseligible for copyright

Large (250+)

Medium (50-

249)

Small (10-49

employees)

All


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Table 2.10: Formal protection methods by sector (percentage of all enterprisesin each sector)

Sector

Produce

materialseligible forcopyright

Register atrademark

Applyfor apatent

Register

anindustrialdesign

Knowledge-intensive services 11.3 6.1 3.6 1.0

Engineering-based manufacturing 7.6 5.7 8.6 3.1

Other manufacturing 6.8 7.3 4.3 2.2

Retail & distribution 5.1 7.0 3.2 1.5

Other services 3.1 3.3 1.0 0.6

Primary sector 2.1 4.3 2.1 1.6

Construction 0.4 1.4 0.4 0.4

2.7 Constraints on innovation

Another important use of innovation survey data is the insight it gives into thereasons for absence of innovation activities and outcomes. These can provide theevidence on which to direct possible policy actions to alleviate the constraints and tocreate a more innovation friendly business environment. The survey capturesinformation around low or absent innovation levels through two aspects reasons forlack of innovation activity and the specific constraints on the ability to innovatesuccessfully.

2.7.1 Absence of activity

Enterprises who reported no innovation activity were asked to choose the reason forthis from a menu of three options. The responses are set out in table 2.11.

Table 2.11: Reasons for not innovating (percentage of non-innovative firms)

Reason All Small Medium Large

No need due to market conditions 45.6 45.0 49.7 47.7

No need due to previous innovations 30.0 29.3 34.0 34.8

Other factors constraining innovation 27.4 27.3 28.2 27.9

A similar pattern to that found in previous surveys is apparent. Just under half of allnon innovators said No need due to market conditions when asked why. The actualshare (quoted by 46 per cent of firms) was a little down though on 2007 results (52per cent). Around a third gave the reason no need due to previous innovations andtwenty seven per cent chose factors constraining innovation. The majority of non-innovators in the periods covered by successive surveys appear to take that decisionin the light of their market and internal circumstances, while around a quarter reportfacing insuperable constraints.


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Table 2.13: Innovation constraints (percentage of non-innovation active firms)

Constraint Notimportant Low Medium High

Cost factors

Excessive perceived economicrisks

61.3 8.1 9.8 8.9

Direct innovation cost too high 62.9 7.2 7.9 9.9

Cost of finance 61.0 8.4 8.9 10.1

Availability of finance 61.3 9.7 8.0 9.3

Knowledgefactors

Lack of qualified personnel 64.0 12.5 7.2 4.3

Lack of information ontechnology

66.2 13.6 6.0 2.3

Lack of information on markets 66.7 13.6 5.5 2.0

Market factors

Market dominated by

established businesses

62.5 10.5 8.5 6.4

Uncertain demand forinnovative goods or services

63.7 9.6 8.9 5.8

Regulatoryfactors

UK Government regulations 67.2 11.2 5.1 4.5

EU regulations 69.4 10.3 4.7 3.5

Non innovators rating of the barriers is almost a mirror image of the results forinnovators with not important the predominant response and only a quarterrating constraints as high.

Innovation active enterprises, having experienced barriers while innovating aremuch more likely to report higher importance to specific constraints.

2.8 General Economic Information

The survey concludes by asking about some general economic information about thefirm including any public support for innovation, their turnover in 2008 and thenumber of employees in 2008 along with the proportion with a degree or higherqualification.

2.8.1 Public Support for Innovation

Re-introduced for the 2009 survey, the question on public support reveals few UKenterprises claim any support. Figure 2.23 reveals medium sized firms have thelargest share in receipt of local/regional support which is also the main source ofsupport for all enterprises.


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Figure 2.23: Public support for innovation by size (percentage of allenterprises)

0%

3%

5%

8%

10%

All

Small(10-49

employees)

Medium(50-

249)

Large(250+)

UK local or regional authorities UK central government

European union institutions or programmes

2.8.2 Skills and Innovation

Apart from investment in research, knowledge, equipment and software, the skillsand capabilities of staff and managers are a vital ingredient in successful innovation.They are the source of ideas and the main elements in the absorptive capacity, thatenterprises need to engage effectively with external sources of knowledge aboutopportunities and technologies. In the survey, graduate level employment is collectedas an indicator of innovation related skills in business. Table 2.14 shows the sharesof the employees in 2008 with degree level qualifications in Science and Engineering

and other disciplines12

.

12 The coding of the skills question results has made it impossible to remove missing values from the analysis. This is likely to havelowered the average proport ion of all graduates within t his analyses.


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Table 2.14: Shares of employees that hold a degree in Science or Othersubjects by business size

Science graduates Other graduates

Firmsize

Innovationactive

Notinnovation

active AllInnovation

active

Notinnovation

active All

Small 5.7 1.6 4.1 9.4 3.6 7.2

Medium 4.7 2.6 4.1 7.8 5.2 7.1

Large 5.3 0.9 3.4 8.1 2.3 5.7

All 5.2 1.4 3.8 8.3 3.2 6.4

Innovative active enterprises have more than double the share of employees

educated at degree level in science or other subjects than their non-innovativeequivalents.

Overall, Innovative business have around five per cent of science graduateemployees and 8 per cent of other graduates against one per cent science andthree per cent other graduates in non-innovative business. This were lower thanthe proportion of employees with a graduate (or above qualification) in 2006.

Figure 2.24: Shares of graduate employees by sector

0%

5%

10%

15%

20%

Knowledge-

intensive

services

Primarysector

Engineering-

based

Manufacturing

Total

Other

Manufacturing

Construction

Otherservices

Retail&

distribution

science graduates ( innovation active) other graduates ( innovation active)

science graduates (non-innovation active) other graduates (non-innovation active)


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Research and experimental development businesses report the largest sharewith Science and Engineering degrees, whereas financial services and creativeindustries have higher shares of other graduates (Figure 2.24).


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Chapter 3. Panel Analysis

Although the UK Innovation survey was never intended to be alongitudinal survey, the sampling method used to collect data hasmeant that a number of businesses have appeared in consecutivesurveys. In fact, if we take the last three waves of the Innovationsurvey (UKIS 2005, 2007 & 2009) there are 4,054 such businesses.By collecting together the responses given by each of thesebusinesses we can construct a panel dataset that covers, for mostof the survey topics, a seven year period13

3.1 Introduction

from January 1 2002 toDecember 31 2008.

This sort of panel data is very useful for the deeper analysis of innovation. Not onlydoes it allow like-with-like comparisons to be made over a period of time, it can alsohelp to answer questions about behaviour and dynamics of change that individualcross sections cannot explain.

In this section we present the main results from our analysis of this panel. However,

it is important to note that these results are not statistically representative of allbusinesses in the UK, although there is a reasonable degree of similarity in theirinnovation characteristics. We present these finding with the purpose ofunderstanding better the nature of innovation over time. The analyses that follow arebased on 4,054 unweighted responses that the panel comprises.

3.2 Panel Demographics

As previously stated, the panel is not representative of all businesses in UK.Notably, we find that the panel contains proportionately more large and medium-sized firms than there are in the population. In part, this is a reflection of the

sampling approach which takes a census of all large firms. We also find that theMidlands, Wales and Northern Ireland are over-represented, whilst London and theSouth East are under-represented. In terms of industry, manufacturing is overrepresented and retail and distribution is under-represented.

Nonetheless, the panel provides a significant number of businesses of various sizes,across the UK and industries and therefore we can be reasonably confident that thefindings presented here are indicative of the nature and behaviour of innovation inthe UK.

13 By means of successive survey reference periods.


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We show the composition of the panel in terms of business size, location andindustry below in Table 3.1. Perhaps not surprisingly there has been very little shiftin the geographical locations or the industry these businesses operate in. However,businesses in our panel do appear to have grown in size.

Table 3.1: Panel demographics (percentage of businesses)

2005 2007 2009

Business size

Small 50 49 48

Medium 25 25 26

Large 25 26 26

100 100 100

Region

North East 6 6 6

North West 9 9 9

Yorkshire and The Humber 9 9 9

East Midlands 10 10 10

West Midlands 10 10 10

East of England 8 8 8

London 8 8 8

South East 10 10 10

South West 9 9 9

Wales 7 7 7Scotland 7 7 7

Northern Ireland 6 6 6

100 100 100

Industry

Primary sector 1 1 1

Engineering-based manufacturing 14 14 14

Other manufacturing 18 18 18

Construction 8 8 8

Retail & distribution 17 18 18

Knowledge-intensive services 15 15 15

Other services 27 27 27

100 100 100

3.3 Innovation activity

We first look at the overall innovation performance of businesses in our panel basedon our measure of innovation activity. Here, for completeness, we again defineinnovation activity according to whether a business was either:


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A product innovator (introduced new or significantly improved goods or services);or a

process innovator (introduced new or significantly improved methods for

producing products); or

invested in activities related to innovation (resources allocated to activities suchas R&D and training for innovation activities); or

if the business had ongoing or abandoned innovation activities.

The prevalence of innovation activity in our panel for each of the surveys is shown inTable 3.2. This table also shows the proportion of businesses that engaged in thevarious modes that our definition captures, which are covered in more detail later inthe chapter.

Table 3.2: Percentage of enterprises who were innovation active in each surveywave, by type of activity

Type of activity 2005 2007 2009

Innovation active 66 73 62

Innovation investments 63 72 59

Product innovator 30 25 26

Process innovator 22 16 15

Abandoned or incomplete innovation activities 12 12 8

Table 3.2 reveals that innovation activity among businesses has fluctuated during thelifetime of the panel. As a result of a rise in the proportion of firms investing inactivities related to innovation, the share of innovation active businesses increasedby 11 per cent between the 2005 and 2007 surveys. However, innovation activitythen decreased by 15 per cent between 2007 and 2009, through lower shares withinnovation investments.

This pattern of change in innovation activity within the panel is broadly inline with thatseen in each of the cross-sectional surveys. However, we see here that the

proportions of innovation active businesses for each survey are higher than theircross-sectional equivalents, due to the compositional differences between the paneland cross-sectional datasets.

In Figure 3.1 we present the proportion of innovation active businesses accordingtheir location in the UK. What we see here is that innovation activity does not vary agreat deal across the UK. And we also find that nearly all of the regions display thesame pattern of change as the UK as a whole i.e. innovation activity increasedbetween 2005 and 2007, and decreased between 2007 and 2009.

The only exception to this was in the South East region where activity did not change

between the 2005 and 2007 surveys.


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Figure 3.1: Innovation activity in the regions

0%

20%

40%

60%

80%

100%

EM E SW Scot Y&H Wal SE NE NI NW WM Lon

2005 2007 2009

The greatest change in innovation activity occurred in East Midlands, with an 18 percent increase between the 2005 and 2007 surveys, then more than offset by a 28 percent per cent fall between the 2007 and 2009 surveys. Northern Ireland saw thesmallest changes.

Figure 3.2: Innovation activity by business size

0%

20%

40%

60%

80%

100%

Medium

Large

Small

2005 2007 2009

In terms of businesses size (Figure 3.2) there is also little difference. In the 2005 and2007 surveys, medium and large firms in our panel were more active than small

firms. However, whereas activity in small firms has changed little between surveys,


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the large and medium-sized businesses have seen greater swings and the gap hasnarrowed, as we discussed looking at the general indicators in section 2.

There are, however, greater differences when it comes to sectors (Figure 3.3). In

this case, not only do certain sectors appear to be more active than others, but thereis more variation in activity levels from one survey to next.

In particular, the manufacturing sectors (Engineering based and other) and theknowledge-intensive services have higher shares of innovation activity than the othersectors. But the level of activity varies little between surveys in these sectors suggesting some degree of persistence in the inter-sectoral patterns of innovationbehaviour.

In contrast, we find that the distribution, services and construction industries are lessactive and display a greater change in activity from one survey to the next. Indeed,

the greatest change in innovation activity occurred in Other Services andconstruction where shares with activity increased by 30 per cent and 26 per cent,respectively, between 2005 and 2007, and then fell 22 per cent and 24 per cent,respectively, in the following period.

Figure 3.3: Innovation activity by sector

0%

20%

40%

60%

80%

100%

Other

Manufacturing

Engineering-

based

Manufacturing

Knowledge-

intensive

services

Primarysector

Otherservices

Retail&

distribution

Construction

2005 2007 2009

3.3.1 Persistence of Innovation Activity

The overall proportion of innovation active firms in the panel for each survey iterationmay disguise a more dynamic pattern of behaviour at micro level. It is clear fromTable 3.2 that a large number of businesses are innovation active - but notnecessarily consistently. The panel dataset can be used to show how firms move

into or out of the innovation categories between surveys. Figure 3.4 shows the


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proportion of businesses that were always active, never active, or intermittently activeacross the surveys.

Figure 3.4: Persistence of innovation activity

Sometimes

innovation

active, 50%

Never

innovation

active, 10%

Always

innovation

active, 40%

Here we find the vast majority (some 90 per cent) of businesses in our panel wereinnovation active at some stage. This comprised 40 per cent of businesses that werepersistently active, i.e. innovation active in every survey, and 50 per cent ofbusinesses who innovate irregularly, i.e. active on one or two but not all threesurveys. Just ten per cent of businesses in the panel were never innovation active.

We have already seen that innovation activity various somewhat across differentsectors, and we can also see how persistent innovation activity is among the sectors.

This is shown in Table 3.3.


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Table 3.3: Persistence of innovation activity in industry (percentage of firms ineach sector)

Sector

Never

active

Occasionally

active

Always

activeEngineering-based

manufacturing6 38 56 100

Other manufacturing 5 40 56 100

Knowledge-intensive services 6 48 46 100

Primary sector 20 41 40 100

Other Services 12 58 30 100

Retail & Distribution 15 55 30 100

Construction 19 57 24 100

All 10 50 40 100

From Table 3.3 we see that manufacturing industries have the highest proportion ofbusinesses that are always innovation active. In fact, the majority of firms in thissector are always innovation active some 56 per cent. Furthermore, they also havethe lowest proportion of businesses that never innovate. Again, we noted in section1there appears to be a minimum level (likely sector dependent) of innovation whichfirms need to achieve in order to survive.

Knowledge-intensive services (which includes the R&D service sector) is anothersector where a large proportion of businesses are persistently innovation active (46

per cent), and only a small proportion never innovate.

Within the remaining sectors there is evidence of much more churn. Here, themajority of firms move in and out of innovation activity irregularly.

3.3.2 Transitions

As an overall indicator of movements between states of innovation activity, we canuse transition matrices to look at change. These matrices show the proportion ofbusinesses moving between different states of activity between any two consecutiveyears.

Table 3.4: Transitions between innovation activity status (percentage of firms)

Not active Innovation Active

Not active 51 49 100

Innovation Active 24 76 100

Source

For example, Table 3.4 shows the transitions between innovation activity in ourpanel. This table tells us that 49 per cent of businesses that were not initiallyinnovation active will be innovation active in the following period. Furthermore, some


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76 per cent of innovation active businesses will be innovation active the followingperiod.

3.4 Product and process innovation

The proportion of businesses in our panel that came up with new or significantlyimproved products or processes has decreased slightly over the life of the panel.

At the start of the panel period, 30 per cent of businesses said they introduced a newor significantly improved product, which then fell to around 25 per cent in the last twosurveys.

There is a similar picture with process innovation where the proportion of businessesdeveloping new or significantly improved processes fell from 22 per cent in the firstsurvey to around 15 per cent in both the subsequent periods. We can see from the

Figure 3.5, below, just how the proportions have changed.

Figure 3.5: Product and process innovation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2007 2009

Product

Innovation

Processinnovation


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We also see how product and process innovation varies according to business size,location and industry in Figures 3.6-3.11. For ease of comparison, these arepresented side-by-side.

Some interesting features to note from these figures include:

In terms of business size (Fig 3.6 & 3.7) we see that there are substantial falls in theproportion of product and process innovation across all business sizes between the2005 and 2007 surveys. However, from this point, differences do occur in our panel.For instance, there is an increase in product innovation within large and small-sizedfirms between the 2007 and 2009 surveys, addressing to some degree the declineseen in the previous period. Yet at the same time process innovation within largeand small firms decreased further.

In terms of sectors (Fig 3.8-3.9), there is also evidence of different product and

process innovation behaviour. In sectors with typically high levels of productinnovation, such as manufacturing and the knowledge-intensive services, the pictureis almost cyclical. But in sectors with generally lower product innovation, the patternis less clear. With process innovation we see a mixed picture with continual declinesin process innovation in some sectors (namely manufacturing and the primary sector)and a combination of declines and increases in others.


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Figure 3.6: Product innovation bybusiness size

Figure 3.7: Process innovation bybusiness size

0%

10%

20%

30%

40%

50%

Large Medium Small

2 00 5 2 00 7 2 00 9

0%

10%

20%

30%

40%

50%

Large Medium Small

2 00 5 2 00 7 2 00 9

Figure 3.8: Product innovation by sector Figure 3.9: Process innovation by sector

0%

10%

20%

30%

40%

50%

Engineering-

based

Other

Manufacturing

Knowled

ge-

intensive

Otherservices

Retail&

distribution

Primarysec

tor

Construction

2005 2007 2009

0%

10%

20%

30%

40%

50%

Engineerin

g-

based

Other

Manufacturin

g

Knowledg

e-

intensive

Otherservices

Retail&

distributio

n

Primarysector

Constructio

n

2005 2007 2009

Figure 3.10: Product innovation by GOR Figure 3.11: Process innovation by GOR

0%

10%

20%

30%

40%

50%

SE

EM

Scot

Wal

NI E

Lon

WM

Y&H

NE

NW

SW

20 05 2 007 20 09

0%

10%

20%

30%

40%

50%

SE

EM

Scot

Wal

NI E

Lon

WM

Y&H

NE

NW

SW

2005 2007 2009


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Across the regions, the picture is also unclear (Fig 3.10-3.11). Again, with productinnovation the outlook is almost cyclical where the proportion of innovationdecreased sharply between 2005 and 2007 but then rose between 2007 and 2009;and with process innovation we see a gradual decline in most regions.

It appears then that product and process innovation is much less persistent thatinnovation activity that is, that there is an underlying pattern of innovationinvestment with more occasional introductions into the market or into use of specificnew or improved goods, services or processes for their production and supply.

3.4.1 Persistence of product and process innovation

Given the variability and proportion of businesses that engage in product andprocess innovation, it is not surprising we find that firms do not persistently innovatein these forms.

In Table 3.5 we show the proportion of businesses in our panel that persistently,occasionally, or never product or process innovate.

Table 3.5: Persistence of product and process innovation (percentage of allfirms)

Never active Occasionally active Always active

Product innovator 52 38 10 100

Process innovator 65 32 4 100

This Table reveals that the majority of businesses did not bring any new orsignificantly improved products or processes to the market at any time during thepanels duration. Half (52 per cent) of the businesses in the panel neverimplemented new or improved products and just under two-thirds (65 per cent) neverinnovated in process.

Nonetheless, there is still a sizeable proportion (32 to 38 per cent) of businesses thatdid bring new or improved products and process to the market, albeit on an irregularbasis, and a small proportion (4 to 10 per cent) that innovated persistently. Theevidence from these surveys suggests that that product and process life-cycles are,

on average, considerably longer than the reference period (three years) of thesurveys, with the irregularity of innovation a reflection of the varying life spans ofdifferent products and processes, and the time they take to develop. These patternsof innovation over time may be taken to be useful additional indicators of UKbusiness propensity to product and process innovation.


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3.4 Abandoned and incomplete innovation

Over the course of the panel life time there has been a decline in the proportion ofbusinesses reporting abandoned or incomplete innovation projects14

Table 2.6 reveals that in 2005 and 2007 only 12 per cent of businesses reportedongoing or failed innovation projects, which decreased to eight per cent in 2009.

.

Table 3.6: Percentage of enterprises who had abandoned or incompleteinnovation projects in each survey wave.

2005 2007 2009

Abandoned or incomplete innovation projects 12 12 8

This proportion is fairly small but some 20 per cent of firms have reported ongoing orfailed projects at some stage, and two per cent of businesses persistently hadprojects in the pipeline or abandoned.

The outcome of these projects are not known, however there is evidence to suggestthat many businesses have these projects running alongside new or significantlyimproved products or process brought to the market.

For example, Figure 2.12 shows that in the 2009 survey 84 per cent of businesseswith ongoing or incomplete innovation had introduced a product or process to themarket in the same period. An indication that some businesses are already

preparing for future innovation projects as current innovations hit the market.

Figure 3.12: Ongoing or failed projects with product or process innovation

Productorprocess

innovator,83%

Productorpro

cess

innovator,71%

Productorprocess

innovator,84%

0%

20%

40%

60%

80%

100%

2005 2007 2009

14 The survey changed from one question on ongoing and abandoned to two separate questions in 2009

10 p107a uk innovation survey 2009 science and innovation analysis

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