Business leaders must ensure they create their own bold innovation visions to amplify the efforts of policymakers and stay ahead of their rivals, says Luke Hamm
Innovation is often hailed as the solution to all our economic problems but talking about it and actually being innovative are entirely distinct sides of the same coin.
In Northern Ireland, the right mindset is unquestionably visible due to initiatives such as the 10X Economy, the Department for the Economy’s bold ambition to harness technology and build a ‘10 times better economy with benefits for all our people’, to use its language.
While innovation can seem a malleable concept, with no definitive boundaries, nurturing a restless appetite for improvement and continually investing in research and development (R&D) can bring some incredibly tangible benefits – notably on a firm’s market value and ability to attract investment.
So even though neatly packaging up ‘innovation’ is difficult, it’s easy to identify the behaviours needed to improve your chances of being innovative.
Reality check
The innovation rhetoric might be highly compelling, but its prevalence on the ground is less so.
New research from GovGrant shows that the UK is falling behind its peers when it comes to encouraging innovation on a practical level. It shows that, while we take the lead in academia, we are lagging behind when it comes to driving prosperity from intellectual property. The UK’s patent system, for example, ranks just 13th on the Global IP Index and SMEs in the UK typically report that their credit availability is ‘poor’ or ‘very poor’.
This suggests the government needs to do more to help encourage innovation, while businesses need better plans and stronger cultures to become truly innovative.
Holistic approach
Launching a strategy that tries to define an intangible concept, such as innovation, is much more likely to fail than one that identifies specific goals that are aligned with a firm’s mission, alongside discernible steps that denote progress.
An abstract plan is far harder to commit R&D funding to than a distinguishable strategy that outlines factors such as what skills a firm requires. This could be a need to hire staff or upskill existing employees, what forms of training are required, a holistic marketing plan, and, crucially, what constitutes success for that business.
Typical business plans often look three to five years ahead, but leaders need to set shorter-term goals if their employees are to remain engaged and committed to the cause. Keeping colleagues motivated towards achieving their employer’s goals and aspirations comes down to culture.
Business leaders must empower their teams to develop ideas and instil the notion that success is about having ideas, rather than always having the perfect idea. Giving this power to your staff tends to increase employee engagement and productivity, which are both vital ingredients for a firm seeking to be an innovative force with a stronger balance sheet.
As the UK’s Innovation Report estimated, firms that consistently invest in R&D are 13 % more productive, reinforcing how important it is to have a clear operational and financial strategy to achieve innovation goals.
Seeking support
A coherent innovation plan is important for motivating a firm’s workforce, but it is also crucial if a business needs to engage external help and support. Investing in R&D opens up huge amounts of government funding for UK businesses.
Those that demonstrate their innovative activity can claim back tax under the R&D tax credits scheme, and therefore have more available revenue to drive further innovation, thus creating a positive feedback loop. Beyond this, the Patent Box scheme gives businesses a reduction in corporation tax if they have their innovation patented in the UK. A good innovation strategy will take advantage of this.
Having a patent can seem like an arduous process, but securing one allows a business to maintain its competitive advantage, engage better with potential prospects, and ultimately sell more of its product or services. This drives the value of the company up and improves the investment prospects of the company too.
Essentially, a patent should be seen as a tool for improving commercial value, not just protecting intellectual property.
Enticing investment
Being able to place a greater value on your firm because of its innovation credentials also means the business is more likely to attract foreign direct investment, or secure backing from venture capital funds or angel investors.
Such investors tend to be particularly proactive in helping portfolio companies to continue to grow so that their investment is worth more when they exit. One way that they do this is by helping companies to identify pools of capital that are designed to support innovation-intensive companies.
These include Enterprise Investment Schemes and the similar Seed Enterprise Investment Schemes, both of which provide capital to innovative firms from investors who, in turn, receive tax relief on their shareholding and the returns derived from it.
Some business leaders may be unsure about pursuing such avenues, but the data supports the notion that IP-rich businesses are a solid investment. Research by GovGrant and CBI Economics reveals that investment in IP products has shown greater resilience compared to investment in other asset types throughout Covid-19.
Between the third quarters of 2019 and 2020, investment fell by 9% for IP products, compared to 26% for buildings and 19% for plant and machinery. This suggests IP investment has been more resilient to the economic shock caused by the pandemic.
Other countries have witnessed a similar trend, according to the research, however, there is an added issue where the UK is concerned.
Businesses in other countries tend to spend more on IP assets; these represented between 40 % – 50 % of all business investment in the US, Switzerland and the Netherlands in 2019, compared to just 36 % in the UK.
This is due to faster growth in IP assets relative to all business investment in these countries, indicating a greater shift away from physical assets over the past two decades than that seen in the UK. For example, Switzerland’s investment in IP assets quadrupled between 1998 and 2018, while the UK’s – which began the period at a lower level – only doubled.
Ambition required
This lag is even more concerning when it is set against the overall decline in UK business investment that has been witnessed in the past four decades. From a peak of 14.7% of GDP in 1989, business investment hit a low of 10% at the end of 2019, a period when it grew in countries such as the US and Sweden.
As the UK begins its post-Brexit chapter, and a post-pandemic rebuild, it must display a determined dedication towards creating an environment that nurtures innovation. The recent appointment of Indro Mukerjee as the new chief executive of Innovate UK certainly signals intent. But the non-departmental body has only invested around £2.5 billion to help businesses innovate since 2007, which pales in comparison against the nearly €80 billion Horizon 2020 fund (which ran from 2014 to last year) overseen by the EU and targeted at research and innovation.
Encouragingly, Mukerjee is being tasked with ensuring the government fulfils its commitment to increase R&D spending to 2.4% of GDP by 2027. Compared to the 1.7% it stands at now, our research shows this is a significant rise, but will still be behind the likes of Switzerland (3.3 % now) and South Korea (4.3% now).
Business leaders must, therefore, ensure they create their own bold innovation visions to amplify the efforts of policymakers and stay ahead of their rivals.
Luke Hamm is CEO of GovGrant and has more than 10 years of commercial and general management experience with the insurance broker, Aon.
His roles have included account management, new product development, continuous business improvement and change management.
He came to GovGrant as CCO to transform the business and deliver unprecedented growth. Now as CEO he is ensuring that GovGrant is taking its place as the UK’s largest specialist provider of IP services and R&D tax relief helping clients commercialise innovation. He has a real and practical understanding of the challenges facing innovative businesses today.
