Reversing R&D under-performance
Nola Hewitt-Dundas explains why Northern Ireland’s low innovation must be turned round. Government support has been strong but will not last at current levels. Businesses must therefore make R&D strategic rather than sporadic.
A legacy of political, social and economic problems has contributed to Northern Ireland performing poorly on many of the standard economic indicators.
Productivity is four-fifths of the UK average and has stayed at this level for more than a decade. Exports from Northern Ireland have contracted at a faster rate than elsewhere in the UK over the past year, declining by 17.5 per cent. Economic activity rates are the lowest in the UK and the claimant count is the second highest at 6.5 per cent, surpassed only by the North East of England.
While these statistics cause concern, perhaps more important is Northern Ireland’s R&D and innovation performance as this provides an insight on future economic growth and competitiveness. Unfortunately the pattern of under-performance persists.
R&D investment by Northern Ireland businesses is less than half the UK average and two-thirds of that in the Republic of Ireland. If we extend this comparison further to a small open economy such as Singapore, then the R&D investment gap widens, with Northern Ireland businesses investing less than a third of that in Singapore.
Even accounting for structural differences in the Northern Ireland economy relative to these other economies the message is clear: Northern Ireland is under-investing in R&D. Perhaps most concerning is the fact that there has been very little change in relative levels of R&D investment or innovation activity in Northern Ireland over the past 10 years.
Why it matters
The obvious question is: “Does it matter if Northern Ireland businesses continue to under-invest in R&D?” The short answer is “Yes, it does” for two main reasons.
First, R&D activity (both formal and informal) is directly related to innovation and subsequently business performance. It is not surprising therefore that Northern Ireland has the lowest proportion of innovation-active businesses in the UK, with only 55 per cent of businesses introducing new or improved products, services or processes over the past three years.
Under-investment in R&D is translating directly into lower levels of innovation activity, which in turn is eroding the competitiveness of local businesses and making it more difficult for them to compete in international markets.
The second reason why investing in R&D is important is because it builds awareness of internal resources and capabilities as well as external competitive and market environments. Undertaking R&D builds ‘absorptive capacity’ – the ability to identify, assimilate and exploit knowledge from elsewhere. R&D active businesses therefore are more able to identify relevant technological or market information outside the business and to use this information in the development of new products, services or processes.
Given the importance of R&D to business performance and wider economic growth, governments frequently intervene to overcome business under-investment. Northern Ireland public sector organisations have adopted this approach and accusations that it has failed to intervene in promoting business R&D and innovation are misplaced.
This is reflected in the implementation of a Regional Innovation Strategy by DETI in 2003, the revision of this in 2006 and the most recent Innovation Action Plan for 2008-2011. At the same time, it is difficult to see how the current public sector investment of £360 million associated with the 2008-2011 Innovation Action Plan can be sustained in the absence of any notable improvement in business R&D and innovation activity and substantial public sector spending cuts.
Where businesses in Northern Ireland have received grant support for R&D and innovation, evidence suggests that this has had a positive effect on performance – albeit in the short-term. The main problem is in sustaining this R&D and innovation activity beyond the initial period of grant support.
For many businesses, R&D and innovation are sporadic activities undertaken in response to technological or market problems. The challenge is in encouraging businesses to make innovation integral to their strategic and operational plans. That is, to move beyond one-off product or service innovations and to establish processes and routines that lead to sustained innovation activity.
Collaboration
Where the costs of undertaking R&D are high and the returns uncertain, collaborative partnerships may be beneficial. This ‘open’ approach to innovation typically occurs through links with customers, suppliers, competitors and, to a lesser extent, research organisations such as universities. These links provide access to information on issues such as market opportunities, new technology, complementary skill sets and management processes.
Further, this ‘networking for innovation’ reduces the cost and increases the speed of development, as well as helping businesses to penetrate markets that might otherwise have been impossible. Yet, these relationships are not always easy. Costs arise in identifying appropriate partners, in managing the role of each partner, the outputs from the collaboration and the ownership of intellectual property.
Over the past few years Invest NI has attempted to provide support to collaborative networks and joint R&D activities. This is a positive development and an activity in which Invest NI can play an important role in brokering and supporting these links.
Moving forward, the 2009 Independent Review of Economic Policy affirms “the need to continue prioritising innovation and R&D investments more aggressively”. While this is appropriate, achieving it requires a radical re-think of how it is going to be achieved. Current public sector investment in promoting innovation cannot be sustained, particularly when this is failing to translate into sustainable improvements of R&D and innovation activity by businesses.
Dr Nola Hewitt-Dundas is senior lecturer in innovation at Queen’s University Management School.
