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NESTA Summit: Making Innovative Places

The Rt. Hon. Stephen Timms MP,  Former Minister of State for Competitiveness
London,  12 December 2007

Thank you Jonathan. I am delighted to be here today to contribute to this important discussion of how we can make places more innovative.

Future UK prosperity depends on success in an evolving and intensely competitive global, knowledge-based economy. Our ability to innovate is a cornerstone of our response to this challenge – as Lord Sainsbury said in his recent review, we are engaged in a ‘race to the top’.

Our job is to ensure conditions for UK business success:

• encouraging enterprise;
• improving skills; and
• boosting innovation.

All of the regions must rise to this challenge. And we’re committed to working with the RDAs and others to narrow the gap in regional rates of growth.

Innovation has a big role in creating competitive advantage, helping improve how products and services are made and delivered, and increasing efficiency. Innovation is going on right across the economy, in both public and private sectors. It has been an important contributor to good UK economic performance over the last decade.

We need more innovation to compete effectively: in the public sector, in manufacturing, in construction, in service industries – including in areas where we are already doing well, such as the creative industries.

You have heard this morning how innovation geographies operate in regions, cities and clusters. I very much welcome this research and my department will be looking at it with interest.

Our past efforts on innovation have largely focused on R&D, but it is also about:

• product innovation – new, improved products & services;
• process innovation – changing how they are produced; &
• non-technological innovation.

We are improving our understanding of innovation in services and non-technological innovation, and Nesta’s work on hidden innovation is very useful.

The “innovation ecosystem” is a key concept - all the factors in a place which can encourage or hold back innovative activity. We want it to work well, so that firms, individuals and the whole community can share the benefits of innovation.

The Science Cities initiative acts as a catalyst, focusing not just on companies, universities and research institutions, but also on the influential place shaping role of local authorities. Focusing also on alignment of national and regional activity for maximum impact, and on the supporting infrastructure for innovation, whether that’s buildings or access to finance.

Science Cities work goes with the grain of our emphasis on intervening at the right geographical level, set out in October in the Sub-National Review of Economic Development and Regeneration.

The Regional Development Agencies are key players on innovation. I think we have seen them since their creation unleash a new wave of regional level enterprise and innovation which was suppressed before – you can sense it now in the centre of almost any of the major cities around the country. The agencies lead on regional science and innovation strategies, addressing challenges, promoting innovation, building networks and improving skills. Business-led Science and Industry Councils have been set up in each region to bring together key partners.

This co-operation and partnership also needs to work at higher levels. I see great potential in the work the three Northern RDAs are doing, through their Northern Way strategy, to energise innovation across the North, and with a number of other Ministers I met Neville Chamberlain the chair of the Northern Way to discuss progress earlier this week. And I await with interest the OECD review of innovation systems in the North – co-funded by the Northern Way and my department.

We have had a summer of reviews - the Sainsbury Review, Sub-national Review - and the Comprehensive Spending Review. Innovation has a new department. What are we doing to take thinking further?

DIUS leads on innovation policy and is responsible for implementing the Sainsbury review. We are working closely with DIUS on business innovation, and their science and innovation strategy which will be published next spring.
Considering the importance of ‘place’ in innovation systems will be part of this and events like this are important in informing national thinking.

Both departments are working with the OECD as they start work on innovation strategy. We are working together on cluster policy, nationally and in Europe. A key area of collaboration is on innovation in services.

The services sectors account now for over three quarters of UK GDP. But as NESTA showed in its “Hidden Innovation” report, there is innovation going on in sectors vital to our economy which traditional indicators simply don’t pick up. Following on from this and former DTI reports, BERR has started a project on Innovation in Services, in partnership with NESTA and DIUS, which will report in the Spring.

There has been a general trend towards what the report calls “servicisation” in business. Customers are increasingly offered solutions, as opposed to being simply supplied with goods; for example, in manufacturing, Rolls Royce’s “power by the hour” after-sales service for its aircraft engines.

But the drivers of innovation in services are not recognised as readily as, say, manufacturing investment in R&D. Historically, our support for business innovation and productivity growth has tended to emphasize manufacturing more than services. Now we need to look at how best Government can support innovation in services too.

We are focusing initially on a set of five service sectors –

• retail
• logistics
• internet services
• environmental services and
• construction services.

We will be asking businesses to tell us about the key innovations, evidence, barriers, and what Government should or shouldn't be doing.

Our business-led Sector Innovation Groups are already raising questions about delivery of policy and regulation impinging on service innovation, including spatial aspects. For example:

• Can Government show clarity and commitment in implementing policy and regulation, and engage the regions more effectively in this context, to support service innovation better?
• Is Government doing enough to coordinate approaches to public procurement at regional and local levels, to maximise the scope and incentives for service innovation?
• How can the research community help us ensure that technology needs of service sectors are fully taken into account?

We are also working with DIUS and other partners on better metrics for innovation in services, as well as other sectors. While some service businesses, such as ICT suppliers, invest heavily in R&D, much of the services sector depends on other approaches.

An important part of successful innovation seems to lie in the capacity of firms to organise resources. Developing staff and management skills, and investing in ICT, dealing with logistics, and bringing these resources to bear in serving new markets or improving the quality of services to their customers - gaining a competitive edge.

We still have much work to do and will work with NESTA to widen the debate on our initial findings.

Innovation has a key role in a successful and competitive economy. Much work has already been done. But in two key areas – the role of place and the way innovation works in service sectors – more study and discussion is needed. I hope that this event will make a major contribution.

I wish you a fruitful and interesting day. I apologise that my participation has been more constrained than I had hoped as a result of events in the House of Commons today, but I have enjoyed the opportunity to be with you if only for a short time.

Thank you.