UK firms fall short on innovation

17 July 2012

LONDON: Brand owners in the UK have substantially trimmed their outlay on innovation in the last five years, greatly contributing to a "lost decade" of development in this area, a report has revealed.

Nesta, a not-for-profit body focusing on innovation, surveyed 1,200 businesses, and found overall expenditure in this field fell by 14%, or £17bn, between 2009 and 2011.

This decline compounded a slide of 7%, equivalent to £7.4bn, from 2008 to 2009, and a "stagnation" of corporate spending between 2000 and 2008, at 12% of private sector output.

As defined by the report, innovation encompassed branding, R&D, design, training and skills, software development and organisational change, and yielded 63% of GDP growth in the UK from 2008 to 2009.

"Everyone agrees that innovation is the only route to long term growth," said Geoff Mulgan, Nesta's chief executive officer. "The concern is that ... investment in the future didn't just fall during the immediate aftermath of the financial crisis, but also continued falling as the economy appeared to stabilise."

"Other countries are making investment in innovation a top priority and the UK cannot afford not to do the same ...  British business prioritised cash and concrete over investment in future technologies and services, a potentially disastrous decision that now needs to be put right."

Currently, 70% of outlay takes the form of "own-account" – namely, in-house – innovation, rather than that bought externally in the market. The study called this approach "hidden innovation".

Based on full-year figures for 2009, it also revealed that the investment in R&D stood at £16.2bn, with design yielding £15.5bn and organisational improvement taking £25.7bn.

Training and skills development attracted a further £25.8bn, while software enhancements logged £22.6bn, followed by advertising and market research on £12.8bn.

Elsewhere, the analysis also revealed that organisations in manufacturing-led industries were responsible for the vast majority of pure R&D expenditure, at 76.5%.

These companies also contributed the largest single share of spending on design, posting 25%. Trade, hotel and transportation firms accounted for most expenditure on advertising and market research, on 36.8%.

More broadly, manufacturing companies had the highest share of spending, on 17%, ahead of personal services on 16% and financial services on 15%, the analysis added.

Data sourced from Nesta; additional content by Warc staff