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Measuring national innovation strengths: not such a clear picture

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Is the UK’s innovation capacity and capability strengthening or weakening?

Mixed perspectives on the UK’s innovation fortunes

innovation lightbulb

In the the 2017 European Innovation Scoreboard (EIS) the UK jumped up to 5th place, from 8th, and joined the elite group of Innovation Leaders for the first time – excellent news!

Yet in the 2017 Global Innovation Index, the UK fell from 3rd place to 5th, and down from 2nd in 2015.

What’s behind these two contrasting pictures?

We still have a relatively weak showing in the European index, compared to the global index where we rank 2nd out of the EU27. But as a newly anointed Innovation Leader, surely things are looking rosy?

In this blog, I look at what makes up these innovation indexes, and why the UK seems to be improving/weakening in terms of performance, and think about what’s really important.

Composition is key

Both the EIS and GII are ‘composite indicators’. That is, they are an average, constructed from a wide range of indicators – 27, in the case of the EIS, and over 80 in the case of the GII.

I always read these headline indicators with a healthy pinch of salt – there are too many sub-indicators which I don’t feel offer a true reflection of a country’s innovativeness (YouTube uploads or Wikipedia edits in the GII, for example). Having a broad overview of a country’s standing in the world is useful, of course, but the real value for me is diving into the details.

Soaring in Europe?

Map of europe

The 2017 EIS welcomes two new additions to its measurement of innovation performance, and in one of these, the UK is a very strong performer – averaging 45% stronger than the EU - which could explain some of our improved performance.

Most notably, for ‘sales of new to market/firm innovations’ the UK has gone from being one of the worst performers in 2010 (41% of the EU average) to one of the best in 2016 (174%). This is clearly a great success for the UK over the last seven years, with innovations making up a far greater proportion of total sales. We know Innovate UK programmes help UK businesses commercialise and benefit from innovations, and it’s great to see this reflected in the national data.

The UK has some clear strengths

In the GII, UK strengths also come through. We have:

  • strong institutions
  • good infrastructure (ranking first globally for ICT)
  • sophisticated markets
  • are one of the world’s most creative countries

These are important environmental factors to help innovative businesses thrive, and the UK consistently scores strongly across these indicators.

But also areas for improvement

So, with these strengths in mind, what’s driving our fall down the global table?

Looking at the detail, the spending power of UK workers is relatively poor, potentially driven by the well-publicised lag in real wages in the UK. And our Foreign direct investment (FDI) inflows and outflows are relatively low, with the UK ranking 83rd and 122nd, respectively.

Looking at some of the more traditional innovation indicators across the two indexes, we see the familiar lag for the UK in terms of knowledge and technology outputs, and R&D performed (18th, globally) or financed (22nd) by businesses. Unsurprisingly, research skills in businesses is also noted as a weakness (36th).

Compared to the EU average, less than half the proportion of SMEs conduct in-house innovation. Public sector R&D expenditure remains relatively low, and whilst we remain slightly above average in terms of venture capital expenditure, a drop of 66 points since 2010 could be cause for concern.

What is Innovate UK doing to help?

These are big ticket problems, which the Government’s Industrial Strategy aims to tackle through action on science, innovation, skills, infrastructure, trade and more.

Innovate UK has a big role to play in this, by ensuring the UK is a country where innovators can find the funding, connections, and support they need. Part of this is the new Industrial Strategy Challenge Fund (ISCF), which will support SMEs to work on the grand challenges and great new technologies of our time, from Robotics and Artificial Intelligence to batteries for the low emission vehicles of the future.

But our support to helping the UK be the best place to innovate goes far beyond that, and is ever evolving to meet business needs. For example, our recent Investment Accelerator competition was designed to help link investors to earlier stage, high potential SMEs who wanted private sector investment to drive their ideas to fruition.

So, is the UK soaring or sinking?

Put simply, neither of these indexes really answers that question. What we can say is the UK has some clear strengths, and where support is needed for business-led innovation, Innovate UK will be working to provide the connections to investors, collaborators, customers, or research, and providing funding for the most ambitious, promising projects to drive UK economic growth.

Come and see what we’re doing to support UK innovation at our annual event, Innovate 2017, and meet the creators, investors, and entrepreneurs from across the world who create the real picture behind the numbers.

Follow me on Twitter @EconDanH

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