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UK INNOVATION SURVEY 2009

Science and Innovation Analysis

DECEMBER 2010
UK Innovation Survey 2009

Contents
Contents ...................................................................................................................................i

List of Tables and Figures ....................................................................................................iii

Chapter 1. Introduction ..........................................................................................................1

1.1 Introduction .....................................................................................................................1

1.2 Innovation Concepts .......................................................................................................1

1.3 The UK Surveys .............................................................................................................2

1.4 The Innovation Survey 2009........................................................................................... 2

1.5 Main Findings .................................................................................................................3

Chapter 2. Indicators..............................................................................................................5

2.2 Innovation Indicators ......................................................................................................7

2.3 Goods, Services and Process Innovation..................................................................... 16

2.4 Business strategy and practices ................................................................................... 22

2.5 Organisation, management and marketing .................................................................. 23

2.6 Context for Innovation .................................................................................................. 26

2.7 Constraints on innovation ............................................................................................. 37

2.8 General Economic Information ..................................................................................... 40

Chapter 3. Panel Analysis ...................................................................................................44

3.1 Introduction ...................................................................................................................44

3.2 Panel Demographics ....................................................................................................44

3.3 Innovation activity .........................................................................................................45

3.4 Product and process innovation ................................................................................... 51

3.4 Abandoned and incomplete innovation ........................................................................ 55

3.5 Innovation investments ................................................................................................. 56

3.6 Strategic Innovation ......................................................................................................57

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UK Innovation Survey 2009

3.7 Barriers to innovation ...................................................................................................58

3.8 Context for innovation .................................................................................................. 60

Annex A: Technical details of the UK Innovation Survey 2009 ....................................... 63

Division ...............................................................................................................................64

ii
List of Tables and Figures
Tables
Table 2.1 Business objectives (percentage of all firms rating “high”).......................... 6

Table 2.2: Percentage of enterprises who were innovation active, by firm size and
type of activity ............................................................................................................. 8

Table 2.3: Percentage of enterprises who were innovation active, by sector and type
of activity................................................................................................................... 11

Table 2.4: Percentage of enterprises who were innovation active, by GOR and type
of activity................................................................................................................... 11

Table 2.5: Percentage of enterprises that were wider innovators, by firm size and
type of activity ........................................................................................................... 23

Table 2.6: Innovation determinants by sector (percentage of innovative firms rating


“high” in each sector) ................................................................................................ 29

Table 2.7: Sources of innovation information rated “high” (percentage of ‘strictly


innovative’ enterprises) ............................................................................................. 31

Table 2.8: Types of co-operation partners by GOR (percentage of strict innovators) 33

Table 2.9: Types of co-operation partners by sector (percentage of strict innovators)


................................................................................................................................. 35

Table 2.10: Formal protection methods by sector (percentage of all enterprises in


each sector) .............................................................................................................. 37

Table 2.11: Reasons for not innovating (percentage of non-innovative firms) .......... 37

Table 2.12: Innovation constraints (percentage of innovation active firms) .............. 39

Table 2.13: Innovation constraints (percentage of non-innovation active firms) ....... 40

Table 2.14: Shares of employees that hold a degree in Science or Other subjects by
business size ............................................................................................................ 42

Table 3.1:Panel demographics (percentage of businesses) ..................................... 45

Table 3.2: Percentage of enterprises who were innovation active in each survey
wave, by type of activity ............................................................................................ 46

Table 3.3: Persistence of innovation activity in industry (percentage of firms in each


sector) ...................................................................................................................... 50
UK Innovation Survey 2009

Table 3.4: Transitions between innovation activity status (percentage of firms) ....... 50

Table 3.5: Persistence of product and process innovation (percentage of all firms) . 54

Table 3.6: Percentage of enterprises who had abandoned or incomplete innovation


projects in each survey wave.................................................................................... 55

Table 3.7: Percentage of enterprises who engaging in activities related to innovation


in each survey wave. ................................................................................................ 56

Table 3.8: Persistence of engaging in activities related to innovation (percentage of


all firms) .................................................................................................................... 57

Table 3.9: Percentage of wider innovators in each survey wave .............................. 57

Table 3.10: Barriers to innovation (percentage of all firms rating “high”, “medium” or
“low”) ........................................................................................................................ 59

Table 3.11: Barriers to innovation by innovation activity (percentage of all firms rating
“high”, “medium” or “low”) ......................................................................................... 60

Table 3.12: Barriers to innovation by innovation activity (percentage of all firms rating
“high”) ....................................................................................................................... 60

Table 3.13: Effects/deciding factors (percentage of all firms rating “high”) ............... 61

Table 3.14: Reasons for not innovating (percentage of all firms rating “high”) ......... 62

Figures
Figure 2.1: Geographic markets by firm size (percentage of all respondents) ............ 6

Figure 2.2: Types of product innovation (percentage of product innovators) .............. 8

Figure 2.3: Percentage of innovation activity by sector ............................................ 10

Figure 2.4: Innovation active enterprises 2007 vs. 2009 by firm size (percentage of all
enterprises)............................................................................................................... 12

Figure 2.5: Innovation investment activities .............................................................. 13

Figure 2.6: Innovation expenditure in 2008 (proportion of total expenditure) ............ 14

Figure 2.7: Innovation expenditure in 2008 by business size (proportion of total


expenditure in each size) .......................................................................................... 16

Figure 2.8: Development of Goods and Services (product innovators only) ............. 17

Figure 2.9: Development of processes (process innovators only) ............................ 18

Figure 2.10: Novel product innovations (percentage of product innovators) ............. 19

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UK Innovation Survey 2009

Figure 2.11: Novel process innovations (percentage of process innovators) ........... 19

Figure 2.12: Novel innovation by sector (percentage of product and process


innovators in each sector)......................................................................................... 20

Figure 2.13: Distribution of turnover from product innovation by business size


(product innovators only) .......................................................................................... 21

Figure 2.14: Distribution of turnover from product innovation by region (product


innovators only) ........................................................................................................ 22

Figure 2.15: Firms with changes to organisational structure or marketing concepts by


sectors ...................................................................................................................... 24

Figure 2.16: Number of strategic innovations (proportion of wider innovators) ......... 25

Figure 2.17: Strategic innovation combinations (wider innovators only) ................... 26

Figure 2.18: Determinants of innovation (percentage strict innovators rating


determinants “high”) ................................................................................................. 27

Figure 2.19: Cooperating partners (percentage of strictly innovators firms) ............. 32

Figure 2.20: Geographical distribution of cooperation partners (percentage of strict


innovators) ................................................................................................................ 34

Figure 2.21: Formal protection methods by size (percentage of all businesses) ...... 36

Figure 2.22: Reasons for not innovating by sector (non-innovators only) ................. 38

Figure 2.23: Public support for innovation by size (percentage of all enterprises) .... 41

Figure 2.24: Shares of graduate employees by sector ............................................. 42

Figure 3.1: Innovation activity in the regions............................................................. 47

Figure 3.2: Innovation activity by business size ........................................................ 47

Figure 3.3: Innovation activity by sector ................................................................... 48

Figure 3.4: Persistence of innovation activity............................................................ 49

Figure 3.5: Product and process innovation ............................................................. 51

Figure 3.6: Product innovation by business size....................................................... 53

Figure 3.7: Process innovation by business size ...................................................... 53

Figure 3.8: Product innovation by sector .................................................................. 53

Figure 3.9: Process innovation by sector .................................................................. 53

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UK Innovation Survey 2009

Figure 3.10: Product innovation by GOR .................................................................. 53

Figure 3.11: Process innovation by GOR ................................................................. 53

Figure 3.12: Ongoing or failed projects with product or process innovation ............. 55

Figure 3.13: Persistence of wider innovation ............................................................ 58

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UK Innovation Survey 2009

Chapter 1. Introduction
“Innovation will be one of the key drivers of the private sector led
economic growth that Britain so urgently needs” is the innovation
policy message from the Department for Business Innovation and
Skills (BIS). The UK Innovation Survey continues to provide the
data for the indicator and innovation measurement framework to
measure performance and feeding into the Annual Innovation
Report 1 and policy related research and analysis.

1.1 Introduction
This report presents some results from the UK Innovation Survey 2009 2 (UK IS 2009)
and aims to be a useful reference for policy and research purposes providing some
insights into the innovation process including: the factors that determine why firms
innovate and how they innovate; the information sources and partners they use; the
methods they use to protect their innovations; and the barriers they come across.
Some particular results have been drawn out, making comparisons with earlier years
where appropriate. Most analyses are split by size or industrial/commercial sector.
Regional characteristics are predominantly determined by the aforementioned, so are
less extensively discussed here. More detailed results including splits by region, firm
size and sector (as used in the sampling methodology) for all the survey questions,
are in statistical annexes which can be found on the Department’s website 3.

More details on innovation policy can also be found on the Department’s website and
will not be discussed further here 4.

1.2 Innovation Concepts


Innovation surveys carried out in the UK and in many other countries round the world
follow general guidelines set out in an OECD publication known as the Oslo manual
(OECD 2005) 5. This offers suggestions on the conduct of innovation surveys,
including statistical procedures and a review of the range of concepts that fall
together under the umbrella term innovation. These include:

· Product innovation - bringing to the market or into use by business, new and
improved products, including both tangible goods and the provision of

1 http://www.bis.gov.uk/policies/innovation/annual-innovation-report
2 Details about UK innovation surveys and research can be found here http://www.bis.gov.uk/policies/science/science-innovation-
analysis/cis
3 http://www.bis.gov.uk/assets/biscore/science/docs/u/10-p106-uk-innovation-survey-2009-statistical-annex.xls
4 http://www.bis.gov.uk/policies/innovation
5 http://www.oecd.org/dataoecd/35/61/2367580.pdf

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UK Innovation Survey 2009

services. The degree of innovativeness is shown by the distinction between


products new just to the business or which are also new to the market.

· Process innovation, significant changes in the way that goods or services are
produced or provided, again differentiating between processes new to the
business only or also new to the industry.

· Categories of innovation directed investment such as: R&D, capital goods and
software acquisition, design activity, for implementing current innovations or
directed to future product or process changes

· Management related changes, sometimes referred to as soft or wider


innovation, including strategic changes to the organisation of a business or its
functions, in order to achieve gains in competitiveness through efficiency or
service improvements.

The manual also summarises as a guide to survey principles, other elements of the
innovation system, especially the ways that knowledge stocks and flows serve as
vital innovation inputs. The UK and other European innovation surveys, known
collectively as the Community Innovation Survey, take a broadly common form and
ask mostly the same questions, enabling some degree of cross nation comparisons,
within the limits of differing national systems, institutions and economic histories.

1.3 The UK Surveys


This is the sixth of these surveys in the UK. These results, as with previous iterations,
provide a means of tracking innovation achievement and progress. The indicators are
also applied in reporting such as in the Annual Innovation Report. The survey data
and the extensive body of analysis using them, form part of the innovation
measurement framework alongside other indicators such the Innovation Index
recently developed by NESTA. The survey data is a major resource for research into
the nature and functioning of the innovation system and for policy formation. It is
used widely across government, and by the research community. It also has the
advantage of being linked to other business data sources, such as Business
Enterprise Research and Development (BERD), and has a longitudinal component
making it an especially valuable resource. The UK Survey User Group, managed by
the Department, continues to grow and maximise the use of the data resulting in a
significant number of research papers.

1.4 The Innovation Survey 2009


A selection of results from the latest UK survey was published in the Economic and
Labour Market Review in April 2010 6. As with previous publications, this volume is
mostly concerned to present factual material from the survey in a form that is
accessible and useful to a range of stakeholders, including policy makers, analysts,
researchers and business.

6 http://www.statistics.gov.uk/elmr/03_10/downloads/ELMR_Mar10_Robson.pdf

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UK Innovation Survey 2009

The 2009 survey was the second to be conducted on the new biennial survey cycle.
As a result of the increased frequency, nearly half of the achieved sample are
common to both the 2009 and the 2007 surveys, referred to as the ‘Panel’ and 4
thousand businesses are common to the last 3 surveys (2009, 2007 and 2005).
Section 1 and 2 provide an analysis of this rich data set including direct comparisons
over time.

This volume also includes some general comparisons between the results of the
2009 surveys and the previous iteration in 2007 and occasionally 2005. The sectoral
coverage of the 2009 remained unaltered from the previous survey. The coverage of
the creative industries widened from the 2005 survey, but otherwise the sampling has
remained constant over the last three survey iterations. Throughout the report, in
order to make valid like-for-like comparisons with surveys conducted prior to 2007
the additional sectors are excluded from the analysis. As a result the indicator values
used in comparisons will not match other data published in this volume and existing
publications. See the Technical Annex for more details.

The layout of the 2009 survey questionnaire differs in parts from previous surveys.
The order of questions about to innovation activities and strategic or wider innovation
was changed. Respondents were asked about innovation activities during the period
2006 to 2008 and then about any wider innovation behaviour, previously included
towards the end of the questionnaire. New routing and the removal of a filter
question before the question on cooperation has had a significant impact on the
results. This prohibits a direct comparison of some of the results from a sub-section
of the questionnaire (named ‘Context for Innovation’) with previous findings. Other
amendments are highlighted at the relevant results and discussion points.

1.5 Main Findings


Several important features emerge from this dataset. Some headline results for the
latest survey are:

· There were increases in the shares of firms with a product innovation and an
increase in the shares of firms with a process innovation during the 3 year
period 2006 to 2008 compared with the period 2004 to 2006

· Nearly half of product innovations and a third of process innovations were


‘leading edge’ or novel

· Smaller businesses are narrowing the gap with large firms on levels of
engagement across a range of innovation related behaviours

· More firms were cooperating on their innovation projects than has previously
been recorded 7.

The structure of the rest of the report is as follows.

7 The numbers of firms cooperating may be a questionnaire variation effect.

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UK Innovation Survey 2009

Chapter 2 summarises a selection of results from the many variables and sets of
relationships between them, concentrating on the shares of business in a range of
size groups and industrial sectors and UK regions, who are engaged in innovation
related activities including networking with external sources. The results are
presented in the order they are presented in the layout of questionnaire.

Chapter 3 brings out some properties of the panel as defined briefly above. The main
indicators presented in Chapter 2 are revisited for the 4000 businesses that
responded to the 2009, 2007 and 2005 surveys together with investigation of the
changes over time.

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UK Innovation Survey 2009

Chapter 2. Indicators
This Chapter provides summaries of the main survey results by
means of a range of indicators, giving a broad picture of innovation
in the UK. The survey sought information on the nature of the
business activities involved in innovation as well as the effects of
product and process innovation on market position, internal
processes and costs. There is also some inquiry into the nature of
demand for new and improved products and into the linkages,
through knowledge acquisition and co-operation, with other
enterprises and institutions such as the research base. The results
are presented mainly as shares of businesses grossed up to
nationally representative levels by appropriate survey weights.
(Technical details of the UK Innovation Survey are provided in
Annex A.)

2.1 General Business Information

2.1.1 Geographic markets


The survey starts off by asking respondents for information on the markets in which
they operate. As expected, regional markets dominate for small and medium sized
enterprises (SMEs) with large firms primarily operating in national markets. But,
perhaps less expected is that similar proportions of large and medium sized firms (35
per cent) operate in European markets while around a quarter of medium and large
firms are selling outside of Europe. Figure 2.1 depicts market engagement by firm
size.

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UK Innovation Survey 2009

Figure 2.1: Geographic markets by firm size (percentage of all respondents)

UK regional

All
UK national
Large (250+)

European Medium (50-249)


counties
Small (10-49
employees)
All other
countries

0% 20% 40% 60% 80% 100%

2.1.2 Business objectives


The 2009 survey introduced a new question to cover how innovation is embedded in
business strategies. Respondents were asked “How important were each of the
following objectives to this business?” and to rank four objectives from high
importance to not applicable. Tabled below are the four objectives and the shares of
businesses that ranked them as of ‘high importance’ by businesses size.

Table 2.1 Business objectives (percentage of all firms rating “high”)

Objectives All Small Medium Large


Profit margin on sales 59.3 58.1 66.6 60.3
Growth in sales/turnover 48.8 48.1 52.3 52.2
Growth in exports 5.2 4.5 8.5 9.4
Market share in UK 11.6 10.0 18.5 25.9

· Profit margins on sales was the most important objective for all firms, but more
so for medium sized firms

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UK Innovation Survey 2009

· Growth in sales and turnover was ranked important by half of all respondents,
regardless of business size.

· Around a quarter of large firms were motivated by market share compared with a
fifth of medium and a tenth of small firms.

· Growth in exports was ranked ‘high’ by less than ten per cent of all firms

2.2 Innovation Indicators


Before we consider responses on innovation behaviour, context and linkages we
introduce the important concept of an “innovation active” firm used throughout the
report and defined as a business that has engaged in any of the following:

· Introduction of a new or significantly improved product (good or service) or


process for making or supplying them.

· Innovation projects not yet complete, or abandoned.

· Expenditure in areas such as internal research and development, training,


acquisition of external knowledge or machinery and equipment linked to
innovation activities.

2.2.1 Changes over time – 2009 and 2007 surveys


From 2007, the survey frequency changed from a four yearly to a two yearly cycle.
These results are the second set of the biennial running of the survey.

· On the definition above, some 58 per cent of UK enterprises were innovation


active over the 2006-2008 period

· On comparison with the previous survey, this represents a fall of five percentage
points when in 2007, 63 per cent of UK enterprises were innovation active.

· The shares of product and process innovators were 24 per cent and 13 per cent
respectively, both higher than recorded in the 2007 survey.

2.2.2 Innovation activity


Innovation takes place through a wide variety of business practices and a range of
indicators can be used to measure its level within the enterprise or in the economy as
a whole. These include the levels of effort employed (measured through resources
allocated to innovation) and of achievement (the introduction of new or improved
products and processes). The survey also includes coverage of ‘strategic’ or ‘non-
technological Innovation’ also referred to as ‘wider innovation’. These include major
changes in management practices, business structure, organisation or marketing
strategy. Table 2.2 shows the shares of businesses by size of enterprise that fall into
these categories.

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UK Innovation Survey 2009

Table 2.2: Percentage of enterprises who were innovation active, by firm size
and type of activity

Type of activity All Small Medium Large


Innovation active 58.2 57.3 62.5 61.2
Product innovator 23.9 23.0 28.5 31.5
Process innovator 12.6 12.0 15.4 18.9
Abandoned innovation projects 3.5 3.3 4.5 6.6
On-going innovation projects 5.6 5.1 8.1 9.2
Activities related to innovation 55.0 54.2 59.0 55.9

· The majority of businesses are involved in some form of innovation directed


actions, even if not bringing new products or processes into use over the three
year survey period. Within this group, most are investing in the implementation or
development of future products or processes.

· The share of enterprises that are innovation active tends to increase with
business size. However, the 2009 survey found smaller firms are catching up
with medium sized firms in terms of the share of innovation active businesses
[and engaging in more innovation related activities than larger enterprises.]

· We speculated in the report on the 2007 survey that enterprises may be investing
in preparing for future innovation and it appears, based on these results, to have
been the case. An increased number of both product and process innovations
were recorded relative to the previous period. The shares reporting goods and
services innovations are pictured below (figure 2.2).

Figure 2.2: Types of product innovation (percentage of product innovators)

Goods 8% Services
14% 18%

8%

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UK Innovation Survey 2009

2.2.3 Sector variations


The share of enterprises within broad sectors (defined at Annex A) also varies by
type of innovation activity. Table 2.3 shows the percentages under each of the
innovation categories. Despite increased levels of product and process innovation,
overall the share of innovation active firms was some five percentage points lower
than in UK IS 2007. This was a result of fewer firms engaging in innovation related
investment.

· Manufacturing sectors were the most innovative with shares of engineering-


based firms performing strongly over all the innovation measures.

· A higher share of knowledge-intensive services businesses revised their


business structure or practices between 2006-2008.

· At 50 per cent, the primary sector records the lowest share with innovative
propensity. However, nearly one fifth of these businesses introduced a new
process over the period. Of these, half were new to the industry.

Figure 2.3 has a split of sector behaviour over the last two survey periods. Here we
see that all of the broad sectors below have lower shares of innovation activity than
in 2007. These differences over time and between sectors reflect persistent
innovation patterns and product and process renewal and replacement cycles across
industries.

The gap between the most and least innovative sectors is closer in the 2009 survey,
perhaps indicating a lower limit or a minimum level of innovation is always necessary
– a basal rate of innovation?

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UK Innovation Survey 2009

Figure 2.3: Percentage of innovation activity by sector

Knowledge-intensive 2007
services
2009
Other Manufacturing

Engineering-based
Manufacturing

Retail & distribution

Construction

Primary sector

Other services

% 20% 40% 60% 80% 100%

2.2.3 Regional Dimension


These summary indicators can also be analysed to show the distribution of
innovation across the countries and regions of the UK. The regional pattern is
variable over time. On this occasion, as also seen in the sectoral split, the lowest and
highest regional recordings are closer than in 2007 ranging from 55 per cent of
enterprises in Northern Ireland and Scotland to 63 per cent in South East England.
The general explanation of the regional pattern is that of differences in industrial
composition (including, therefore, business size) across the regions and the effect of
the industry specific product and process life-cycles. One example is London where
overall innovation activity was a relatively low 56 per cent of firms yet a comparatively
large share of London businesses recorded forms of managerial and marketing
innovations (29 per cent). London also had the largest share of ongoing or
incomplete innovation projects over the period at seven per cent.

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UK Innovation Survey 2009

Table 2.3: Percentage of enterprises who were innovation active, by sector and type of activity

Engineering- Retail & Knowledge


Primary Other Constructi
Type of activity based distributi -intensive Other
sector manufacturing on
manufacturing on services
Innovation active 49.9 71.1 69.5 51.3 55.3 63.8 52.4
Product innovator 20.9 34.4 34.0 12.7 20.7 31.3 20.1
Process innovator 18.0 17.1 18.9 6.8 10.5 17.4 10.2
Abandoned innovation
projects 2.1 7.1 6.9 0.8 1.8 5.8 2.3
On-going innovation
projects 5.6 11.6 8.8 2.1 4.0 9.8 2.9
Activities related to
innovation 47.5 68.4 65.8 49.4 51.8 60.0 49.3

Table 2.4: Percentage of enterprises who were innovation active, by GOR and type of activity

Yorkshire
North East West East of South South Northern North
Type of activity and The London Wales Scotland
West Midlands Midlands England East West Ireland East
Humber
Innovation active 56.3 60.7 55.5 58.7 59.1 55.8 63.3 57.8 58.6 54.8 54.8 59.5
Product innovator 22.7 24.1 24.5 25.1 23.6 22.9 27.8 25.6 24.4 21.3 16.8 21.0
Process innovator 10.6 13.1 11.9 12.9 13.7 13.2 14.2 11.2 13.1 12.5 10.6 11.7
Abandoned
innovation 2.5 2.8 3.2 2.9 4.5 5.2 4.0 3.1 3.3 2.5 2.7 3.1
projects
On-going
innovation 4.9 4.5 5.7 4.4 6.5 6.9 6.6 5.5 4.4 5.3 4.3 4.3
projects
Activities related
53.0 57.1 50.0 55.5 57.3 53.5 59.9 52.6 55.6 53.1 53.2 56.0
to innovation

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UK Innovation Survey 2009

2.2.4 Changes over time – 2009 and 2007 surveys


The following two figures show comparisons with the previous survey in 2007,
covering innovation activities in 2004-2006.

Figure 2.4: Innovation active enterprises 2007 vs. 2009 by firm size (percentage
of all enterprises)

100%

80%
2007 2009

60%

40%

20%

0%
Small (10-49 employees) Medium (50-249) Large (250+)

· We have already noted the fairly broad measure of innovation – the share of
businesses who record innovation investment or outcomes, has decreased
across all enterprises. Figure 2.4 above illustrates that the effect varied across
business size where for large firms (250+ employees) ‘innovation active’ rates fell
by 13 percentage points.

· Small firms continued to innovate at fairly similar levels to the previous survey.

· But, an intriguing result is that the share of medium sized firms involved in some
form of innovation in 2009 is slightly higher than shares for large firms. This is
predominantly due to a higher share of medium sized business engaging in some
innovation related activities, more specifically, acquisition of computer hardware
and software and changes to marketing methods (see Figure 2.5 below).

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UK Innovation Survey 2009

Figure 2.5: Innovation investment activities

Computer software
Computer hardware
Training
Intramural R&D
Changes to product or service design
Changes to maketing methods 2007
Advanced machinery 2009

Launch advertising
Market research
All forms of design
Acquisition of external knowledge
Extramural R&D

0% 20% 40% 60% 80% 100%

2.2.5 Innovation activities


The most common innovation investments during 2006 to 2008 were acquisition of
computer hardware followed by acquisition of computer software. Figure 2.5 shows
the comparison with the period 2004 to 2006. Most categories were reported by
substantially fewer firms on this occasion with the exception of the numbers of firms
engaging in internal R&D activities and design. Both were fractionally higher than the
level recorded in the previous survey.

We remarked in our analysis of UK IS 2007 that the increased level of engagement in


activities may have been a possible consequence of the extensions to the headings
for ‘acquisition of machinery, equipment and software’ and ‘market introduction of
innovations’ to include specific sub categories. These results seem to suggest that
we were capturing genuine investment behaviour culminating in an increase in
products and processes within this survey cycle.

2.2.6 Innovation Expenditure


We attempt to quantify the level of investment in these areas by asking firms to give
an approximate value of expenditure in each of the main areas for the most recent
year, in this case 2008 8. This question requires respondents to estimate how much of

8 Investment analyses are notoriously variable given the quality of responses to this question. Any results should be used with caution.

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UK Innovation Survey 2009

their total expenditure in major business areas such as capital, training and
marketing is directed towards current or future product and process innovation.

Figure 2.6 shows the breakdown of total innovation directed investments by type of
expenditure 9. Much analysis and a range of government policy initiatives are
focused on R&D, because of the breadth and depth of new knowledge it entails. But
intramural (within the firm) R&D is just one part of the overall innovation investment
picture and accounts for around a third of relevant expenditures. Despite lower
overall levels of investment, this represents a continued investment in R&D during
less favourable economic conditions. This was also apparent from the relatively
strong 2008 Business Expenditure on R&D (BERD) figures. Extramural (contracted
out) R&D accounts for 11 per cent of total innovation investment, while acquisition of
capital including advanced equipment, computers and software, is the largest
proportion at one third of all expenditure. This can be equated to acquiring embedded
technology including information and communications technology developments and
shows the importance to national innovation performance of the diffusion of technical
change. Expenditure on market preparation, in connection with innovation is a far
smaller component than expected, based on earlier results from 2006, indicating
businesses have had to retrench on marketing and distribution expenditures while
committed to funding R&D along with design where shares of expenditure in 2008
remained at the same level as 2006 at five per cent. Spending on innovation related
training remained low.

Figure 2.6: Innovation Expenditure in 2008 (proportions of total


expenditure)

6.5% Internal R&D


5.2%
Acquisition of external R&D
7.1% 31.4%
Acquisition of capital
5.8%
Acquisition of external
knowledge
Training for innovative activities

11.2% All forms of design


32.8%
Market introduction of
innovations

9 Innovation investment expenditure analyses are based on data weighted by employment rather than business weights.

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UK Innovation Survey 2009

This pattern shows some significant variation across business size (figure 2.7 below).
Smaller firms spend a greater proportion of their innovation expenditures on
acquisition of machinery, equipment and software and a higher proportion on
training. Sixty per cent of large firms’ innovation expenditures are on internal and
external R&D.

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UK Innovation Survey 2009

Figure 2.7: Innovation expenditure in 2008 by business size (proportion of total


expenditure in each size)

100%
Acquisition of external
R&D

80% All forms of design

Market introduction of
60% innovations

Acquisition of external
knowledge
40%
Training for innovative
activities

20% Internal R&D

Acquisition of capital
0%
Small (10-49 Medium (50-249) Large (250+)
employees)

2.3 Goods, Services and Process Innovation


The market or within business introduction of new or improved products (goods and
service) and the process for their production or supply, is a core innovation concept
and the national share of firms with such innovations is an important and frequently
cited indicator. This section goes behind the basic product and process innovation
results, reported in section 2.2.2 to report on the ways that these sort of innovation
are carried out and on indicators of intensity.

2.3.2 Product development


Product innovators are asked about how their products were developed. An
amended question for this survey was to distinguish between the development of
goods and services. From Figure 2.8 below we can see that service development
more frequently involves external input. These findings were also uniform across
business size.

16
UK Innovation Survey 2009

Figure 2.8: Development of Goods and Services (product innovators only)

100%

Goods Services
80%

60%

40%

20%

0%
This business or enterprise This business with other Other business or
group businesses or organisations organisation

17
UK Innovation Survey 2009

2.3.3 Process development


Process innovation development is more of an internal affair with most developed in-
house. (Figure 2.9). However, a slightly higher share of smaller firms reported using
input from other business and organisation to help develop new processes.

Figure 2.9: Development of processes (process innovators only)

2.9%
9.2%

25.6%
This business with other
businesses or
organisation

This usiness or enterprise


group

Other businesses or
organisation

Not mentioned

62.3%

18
UK Innovation Survey 2009

2.3.4 Novel Innovation


Figure 2.10: Novel product innovations (percentage of product innovators)

Product innovators

Novel products 44%

Figure 2.11: Novel process innovations (percentage of process innovators)

The intensity of product and process innovation also emerges from the survey. One
indicator is the share of product and process innovations that are said to be new to
the market or to the industry respectively. Just under half of all product innovations
were also new to market or ‘novel’, while just short of a third of process innovations
were new to the industry (Figure 2.10 and 2.11)

19
UK Innovation Survey 2009

Figure 2.12: Novel innovation by sector (percentage of product and process


innovators in each sector)

Primary sector

Engineering-based
Manufacturing
New to market
Retail & distribution products

New to industry
Other Manufacturing processes

Knowledge-intensive
services

Other services

Construction

0% 20% 40% 60% 80% 100%

· From figure 2.12, in most sectors 10, more than forty per cent of product
innovative enterprises are also novel product innovators, introducing goods or
services new to their market, rather than follower innovators, trying to catch up
with the competition, they are pro-actively keeping ahead of the competition.

· Process innovation is more complex and likely to involve more extensive change
but, on average, around a third of process innovative enterprises were novel
process innovators with around two fifths of process innovations in the
knowledge-intensive services sector new to the industry.

· Both the percentage of process innovators who introduced new processes to


their industry and the percentage of product innovators who introduced new
products to their market increased on 2007 and are more comparable to levels
seen in the 2005 survey. Whereas we remarked last time that the 2007 results
were similar to those from the 2001 survey.

· The life cycles of goods and services and of the processes to produce them
seem part of the explanation of these patterns across time.

10 There are only small numbers of primary sector firms that were product and/or process innovators resulting in exceptionally higher

shares of novel innovations

20
UK Innovation Survey 2009

The intensity of innovation can also be measured through the shares of business
turnover due to different degrees of product innovation

Figure 2.13: Distribution of turnover from product innovation by business size


(product innovators only)

100%

80%
Products that were significantly improved
Products new to business but not new to market
Products new to the market
60%

40%

20%

0%
All Small (10-49 Medium (50-249) Large (250+)
employees)

· The shares of innovative sales are marginally higher for smaller firms, reflecting
their smaller range of products.

· Small firms attributed six per cent of their turnover in 2008 to novel product
innovations they had introduced during 2006-08.

· Across all firm sizes, around 20 per cent of turnover was reported to be in novel,
new or improved products.

21
UK Innovation Survey 2009

Figure 2.8: Development of Goods and Services (product innovators only)

100%

Goods Services
80%

60%

40%

20%

0%
This business or enterprise This business with other Other business or
group businesses or organisations organisation

17
UK Innovation Survey 2009

process change. These domains of changing the business include management


techniques, organisational restructuring and approaches to the market place. The
innovation surveys in 2001, 2005, 2007, and 2009 have included lines of questioning
around these important topics and this chapter brings out some of the results (mainly
from the recent survey).

The following paragraphs report the basic facts about innovation through
organisational and management change, taken as distinct forms and also in
conjunction with other forms of innovation directed activities and outcomes.

2.5 Organisation, management and marketing


2.5.1 Strategic changes
There is growing importance of service providing sectors in the economy and
increasing awareness of the role of business processes and organisation for
efficiency and meeting customer requirements. The 2009 UK IS seeks to identify the
number of businesses that have undertaken distinct and significant changes in
pursuit of competitive advantage, under the heads of Organisation, Advanced
Management Techniques, and Marketing strategy. The revised survey layout
positions these managerial forms of innovation alongside traditional product and
process innovation enquiries.

Overall, 27 per cent of enterprises (Table 2.5) adopted one or more such changes
during 2006 to 2008. As expected, the share of strategic innovators increases with
business unit size, with 39 per cent of large firms reporting one or more types against
25 per cent of smaller firms.

However, these proportions are slightly lower than the levels during 2004 to 2006.
Shares of larger firms engaging in these practices have fallen and are nearer the
levels of medium sized businesses.

Table 2.5: Percentage of enterprises that were wider innovators, by firm size
and type of activity

Type of activity All Small Medium Large


Wider innovator 26.5 24.5 36.5 39.0
New or significantly changed corporate strategy 12.4 11.4 17.0 19.6
New management techniques 10.1 8.9 15.6 19.3
Major changes to organisational structure 16.4 14.8 23.4 27.5
Changes to marketing concept or strategy 15.7 15.0 19.8 18.3

· During 2006 to 2008 major changes to organisational structure along with


changes to marketing concept and strategy were the most frequently adopted
form of strategic innovation and the chart below (Figure 2.15) shows that the
knowledge-intensive services had the highest shares of businesses engaging in
these innovative practices.

23
UK Innovation Survey 2009

· Changes to marketing concepts or strategies are implemented by a larger share


of smaller firms but this form of innovation was least popular amongst large
businesses.

Figure 2.15: Firms with changes to organisational structure or marketing


concepts by sectors

Knowledge-intensive
services

Primary sector

Major changes to
Engineering-based
organisational structure
Manufacturing

Other Manufacturing
Changes to marketing
concepts or strategies
Other services

Retail & distribution

Construction

0% 20% 40% 60% 80% 100%

2.5.2 Intensity of managerial change


It is clear from the results in Table 2.5 above that firms often combine forms of
strategic innovation and a simple indicator of the intensity of managerial change is a
count of the number of types adopted and the combinations that are favoured. Figure
2.16 shows the count measure, based on those with some form of strategic
innovation.

24
UK Innovation Survey 2009

The intensity of innovation can also be measured through the shares of business
turnover due to different degrees of product innovation

Figure 2.13: Distribution of turnover from product innovation by business size


(product innovators only)

100%

80%
Products that were significantly improved
Products new to business but not new to market
Products new to the market
60%

40%

20%

0%
All Small (10-49 Medium (50-249) Large (250+)
employees)

· The shares of innovative sales are marginally higher for smaller firms, reflecting
their smaller range of products.

· Small firms attributed six per cent of their turnover in 2008 to novel product
innovations they had introduced during 2006-08.

· Across all firm sizes, around 20 per cent of turnover was reported to be in novel,
new or improved products.

21
UK Innovation Survey 2009

Figure 2.17: Strategic innovation combinations (wider innovators only)

100%

80%

60% Corporate strategy


Management techniques
Organisation change
40% Marketing strategies

20%

0%
Corporate Management Organisation Marketing
strategy techniques change strategies

· Organisational change was the method most used in combination with any of the
others. Over 60 per cent of businesses also re-organised and restructured when
they adopted new management techniques or a new corporate strategy.

· And, this tended to be combined with similar proportions adopting a new


marketing strategy.

2.6 Context for Innovation


Another relevant distinction used in the following results is what we have termed a
‘strict innovator’. These businesses are defined as having engaged in any of the
following:

· Introduction of a new or significantly improved product (good or service) or


process for making or supplying them.

· Innovation projects not yet complete, or abandoned.

· Engaged in a managerial or “wider” form of innovation

· The next section of the questionnaire took ‘strict’ innovators through a series of
questions on factors influencing their innovation behaviour, information sources
utilised and any partners they collaborated with.

26
UK Innovation Survey 2009

2.6.1 Determining factors for innovation


The need for, and level, of innovation for business enterprises derives from a variety
of motives, including seeking competitive advantage or responding to competition,
the need for efficiencies, improving customer satisfaction, or market re-positioning.
The regulatory environment can also lead to a need for changes in products,
processes or business practices. The survey investigates the ways that innovation
affects the businesses themselves, both through financial indicators such as turnover
impact, already covered above, and through a set of intermediate factors.

2.6.2 Determinants
Enterprises were asked to rate a number of motivations for innovating on a scale
from no importance, through low, medium, and high. Figure 2.18 summarises the
“high importance” responses for all innovation active enterprises and by size of
enterprise.

Figure 2.18: Determinants of innovation (percentage strict innovators rating


determinants “high”)

Improve quality of goods or services

Increase range of goods or services

Increase value added


All
Increase market share

Meet regulatory requirements Large (250+)

Reducing costs per unit produced or provided Medium (50-


249)
Entering new markets
Small (10-49
Improve flexibility for producing goods or services employees)

Increase capacity for producing goods or services

Improve health and safety

Replace outdated products or processes

Reduce environmental impact

0% 20% 40% 60% 80% 100%

· In general product and market orientated objectives were significantly rated


above process orientated factors with ‘Improved quality of goods or services’ the
most frequently cited by over half of all firms, consistently with the pattern from
previous surveys. Increasing range of goods and value added were also

27
UK Innovation Survey 2009

relatively important, and is consistent with the significant contribution to turnover


from improved products.

· Reducing environmental impacts, replacing outdated products or processes or


improving health and safety were the least frequently cited factors in substantially
influencing the decision to innovate.

· Large firms tended to be influenced more than SMEs by process factors, such as
reducing costs per unit produced or provided and improvements to health and
safety,

· Large firms also appear to be more prone to innovate in order to gain greater
market share, than entering new markets, while SMEs rated the two factors
similarly.

28
UK Innovation Survey 2009

Table 2.6: Innovation determinants by sector (percentage of innovative firms rating “high” in each sector)

Engineering- Knowledge
Primary Other Retail &
Determinants based Construction -intensive Other
sector manufacturing distribution
manufacturing services
Increase range of goods 35.3 38.7 43.3 23.1 40.8 38.9 31.5
or services
Entering new markets 32.3 38.3 33.1 21.1 27.1 31.1 22.8
Reduce environmental 30.8 18.1 22.3 25.4 17.6 12.2 19.4
impact
Replace outdated 27.1 26.6 24.9 18.6 19.0 18.5 23.4
products or processes
Increase market share 32.3 36.6 32.9 21.4 35.2 32.9 31.3
Improve quality of 48.1 56.1 51.5 44.7 52.9 51.1 49.4
goods or services
improve flexibility for 26.3 34.8 30.1 24.4 23.8 25.8 21.8
producing goods or
services
Increase capacity for 26.3 30.4 25.0 23.7 21.3 20.5 22.8
producing goods or
services
Reducing costs per unit 30.1 41.0 40.7 23.7 31.0 21.8 23.5
produced or provided
Improve health and 38.3 27.8 26.1 41.9 20.8 12.1 24.8
safety
Meet regulatory 37.6 32.0 29.0 37.2 29.5 30.7 31.7
requirements
Increase value added 36.8 38.9 38.9 30.8 34.5 39.4 33.6

29
UK Innovation Survey 2009

· Across all sectors product orientated factors dominated.

· Engineering based manufacturing firms tended to cite all factors as having a


higher importance than the other sectors apart from health and safety and
regulatory factors, which are significant drivers of the construction sector’s
innovation.

· Improving quality of goods and services was a highly motivating factor for around
half of all businesses in all sectors

· Reducing environmental impact was more relevant to the primary sector followed
by the construction sector.

2.6.3 Linkages in the system


A fruitful way of thinking about the economics of innovation is in terms of a national
system, where innovators and the external environment, including other enterprises,
institutions and the business infrastructure are linked by flows of knowledge or by
collaboration in research or other forms of joint innovation. Much analysis has
pointed to the effectiveness of the collaborative mode in achieving innovation
objectives where economic conditions and the absorptive capacity of the businesses
involved are appropriate. Here we review the results on the broader patterns of
information flows and collaborative arrangements.

2.6.4 Sources of information


A wide variety of sources of information were included in the survey form and most
were quite widely accessed with overall proportions of businesses using all forms of
information sources higher than recorded in UK IS 2007. It seems this is
predominantly driven by the increased value SMEs, especially smaller firms, are
placing on all information sources. In contrast, there was a decrease in the value
large firms placed on all but two of the information sources. Overall, market sources
such as clients and customers and internal sources (within their enterprise group)
were rated as the most important source of information for innovation. Earlier survey
results are consistent with these findings indicating businesses rely on their own
experience coupled with information from suppliers, customers and clients. The least
frequently cited were institutional sources. Small firms appear to be placing more
value on Conferences, trade fairs and exhibitions and professional and industry
associations than firms with fifty plus employees.

30
UK Innovation Survey 2009

Table 2.7: Sources of innovation information rated “high” (percentage of


‘strictly innovative’ enterprises)

Source of information All Small Medium Large


Clients or customers 45.8 45.6 46.0 49.7
Within your business or enterprise group 41.4 40.2 45.2 49.4
Suppliers of equipment, materials, services or software 23.3 24.2 19.6 22.1
Competitors or other businesses in your industry 18.9 19.1 18.0 19.9
Technical, industry or service standards 11.2 11.2 10.8 13.4
Professional and industry associations 9.7 10.5 6.7 8.5
Conferences, trade fairs, exhibitions 7.1 7.3 6.5 4.8
Consultants, commercial labs, or private R&D institutes 4.7 4.8 4.2 6.5
Scientific journals and trade/technical publications 4.3 4.7 2.7 4.1
Government or public research institutes 3.4 3.6 2.3 3.5
Universities or other higher education institutions 2.9 2.9 3.2 2.4

2.6.5 Cooperation
A range of studies have indicated that cooperation arrangements can enhance
innovation and deliver improved businesses performance. There is significant policy
interest in deriving economic and social benefits from the outputs of the world ranking
UK research base. This can, in some circumstances, be enabled through direct co-
operation between business and HEIs, as well as through other forms of knowledge
transfer.

Enterprises that innovated in the strictest sense are asked whether they have
cooperation arrangements 11 and with what type of cooperation partner and their
location. The information tabled below shows the shares for each type of cooperation
partner.

A large proportion of these firms collaborated on their innovation projects during the
latest survey period. Nearly three fifths (59 per cent) of all strictly innovative
enterprises had co-operation arrangements. A direct comparison with the previous
survey is not possible, due to amendments to the survey question, but it seems
reasonable to say, questionnaire changes aside, that a higher share of firms are
collaborating for innovation The most frequent partners for co-operation were clients
or customers (45 per cent of strict innovators, see Figure 2.19). Around 15 per cent
of innovators included universities among their partners.

11 Changes to the routing within the 2009 questionnaire, including the removal the filter question on cooperation ‘did your business

cooperate on any innovation projects Y/N’ is likely to have contributed to the increased shares of innovators cooperating in this round of
the survey

31
UK Innovation Survey 2009

Figure 2.19: Cooperating partners (percentage of strict innovators)

100%

80%

60%

40%

20%

0%
Clients or Suppliers of Other Competitors Consultants, Universities Government
customers equipment, businesses or other commercial or other or public
materials, with your businesses in labs, or higher research
services or enterprise your industry private R&D education institutes
software group institutes institutions

· On the whole there was little variation by size of enterprise in the proportion of
enterprises collaborating on innovation projects and by type of partner. Although
higher shares of large firms were collaborating with ‘other businesses within your
enterprise group’ and ‘Consultants, commercial labs, or private R&D institutes’.
Whereas shares of SMEs that collaborate with ‘Competitors or other businesses
in your industry’ were higher than for large firms.

· The location of partners varied more across business size groups. Perhaps not
surprisingly, larger firms collaborate more both nationally and (especially)
internationally than SMEs.

· At Regional level, Table 2.8 shows that the East of England had the highest
share of enterprises with some form of collaboration.

· The North East of England had the highest share of collaborations with the
research base

32
UK Innovation Survey 2009

Table 2.8: Types of co-operation partners by GOR (percentage of strict innovators)

Suppliers of Other
equipment, businesses Competitors or Consultants, Universities or Government or
materials, with your other commercial other higher public
Clients or services or enterprise businesses in labs, or private education research
GOR Any customers software group your industry R&D institutes institutions institutes
East of 65.6 46.3 41.6 30.4 18.9 20.7 15.5 13.7
England
Scotland 62.1 43.2 42.8 30.7 21.1 20.5 13.5 13.8
North West 60.7 47.9 41.5 35.5 23.4 18.5 16.3 15.4
Yorkshire 60.6 46.1 39.7 24.4 17.4 15.5 12.2 11.7
and The
Humber
South East 59.9 42.9 39.8 33.8 22.0 17.7 16.3 15.5
Wales 59.8 50.7 39.8 29.5 22.3 19.8 15.3 13.8
North East 59.2 48.4 41.1 32.1 24.6 22.9 19.6 17.0
London 58.1 46.8 37.6 31.3 21.2 19.1 16.1 17.4
West 57.1 46.3 36.8 27.0 19.4 18.3 14.0 10.6
Midlands
East 56.5 43.6 40.6 25.9 15.2 18.6 15.4 13.0
Midlands
South 53.4 37.2 35.0 24.3 17.4 14.8 9.7 10.6
West
Northern 50.5 37.2 33.0 24.9 14.3 16.5 11.9 11.0
Ireland
All 59.1 44.7 39.2 29.8 20.0 18.3 14.8 14.0

33
UK Innovation Survey 2009

Figure 2.20: Geographical distribution of cooperation partners (percentage of


strict innovators)

100%

80%

All UK regional All UK national All other Europe All other countries

60%

40%

20%

0%
North East

South East

London
North West

South West
East Midlands

Scotland

East of England
West Midlands

Wales
Yorkshire and The

Northern Ireland
Humber

· Scotland had the highest share of business that collaborated at the regional level
followed by the North West and Northern Ireland.

· Northern Ireland and the South East had the largest share of European
collaborations. London and the East of England had the largest share of
enterprises collaborating with partners outside of Europe.

· As noted above, much of the regional story can be explained by sectoral


behaviour. Collaboration partners by industry are charted below. Research and
experimental design in natural science are the most collaborative sector
sampled.

34
UK Innovation Survey 2009

Table 2.9: Types of co-operation partners by sector (percentage of strict innovators)

Other Suppliers of
businesses equipment, Competitors or Consultants, Universities or Government
within your materials, other commercial other higher or public
enterprise services, or Clients or businesses in labs, or private education research
Sector Any group software customers your industry R&D institutes institutions institutes
Retail &
60.1 45.3 46.1 35.7 25.1 20.1 16.8 17.0
distribution
Primary sector 57.1 44.4 39.8 27.1 24.1 33.8 14.3 14.3
Other services 52.5 39.6 33.3 27.6 19.6 17.8 13.6 14.4
Other
63.6 46.8 43.0 26.9 16.7 17.3 14.7 10.0
manufacturing
Knowledge-
intensive 61.9 47.4 36.2 30.4 20.3 17.5 15.5 14.9
services
Engineering-
based 67.6 53.1 42.6 30.6 18.7 20.8 15.4 12.1
manufacturing
Construction 52.2 38.2 39.4 24.8 15.3 15.8 10.6 12.1
All 59.1 44.7 39.2 29.8 20.0 18.3 14.8 14.0

35
UK Innovation Survey 2009

2.6.5 Innovation protection


The 2009 survey asked about the use of formal protection methods, in line with the
EU harmonised questionnaire. All levels of take-up were low (Figure 2.21); with
registering a trademark the most frequently used method amongst large firms at 11
per cent followed by patent applications at eight per cent. Very few SMEs reported
engaging in formal protection methods. Registering an industrial design was used
least regardless of size. Sectoral breakdowns (Table 2.10) reveal significant
differences with experimental design/knowledge-intensive and manufacturing sectors
indicating IP is an important tool in protecting their innovations.

Figure 2.21: Formal protection methods by size (percentage of all businesses)

Produce materials
eligible for copyright

Large (250+)

Medium (50-
Register a trademark 249)
Small (10-49
employees)
All
Register an industrial
design

Apply for a patent

0% 10% 20% 30% 40% 50%

36
UK Innovation Survey 2009

Table 2.10: Formal protection methods by sector (percentage of all enterprises


in each sector)

Produce Register
materials Apply an
eligible for Register a for a industrial
Sector copyright trademark patent design
Knowledge-intensive services 11.3 6.1 3.6 1.0
Engineering-based manufacturing 7.6 5.7 8.6 3.1
Other manufacturing 6.8 7.3 4.3 2.2
Retail & distribution 5.1 7.0 3.2 1.5
Other services 3.1 3.3 1.0 0.6
Primary sector 2.1 4.3 2.1 1.6
Construction 0.4 1.4 0.4 0.4

2.7 Constraints on innovation


Another important use of innovation survey data is the insight it gives into the
reasons for absence of innovation activities and outcomes. These can provide the
evidence on which to direct possible policy actions to alleviate the constraints and to
create a more innovation friendly business environment. The survey captures
information around low or absent innovation levels through two aspects – reasons for
lack of innovation activity and the specific constraints on the ability to innovate
successfully.

2.7.1 Absence of activity


Enterprises who reported no innovation activity were asked to choose the reason for
this from a menu of three options. The responses are set out in table 2.11.

Table 2.11: Reasons for not innovating (percentage of non-innovative firms)

Reason All Small Medium Large


No need due to market conditions 45.6 45.0 49.7 47.7
No need due to previous innovations 30.0 29.3 34.0 34.8
Other factors constraining innovation 27.4 27.3 28.2 27.9

A similar pattern to that found in previous surveys is apparent. Just under half of all
non innovators said ‘No need due to market conditions’ when asked why. The actual
share (quoted by 46 per cent of firms) was a little down though on 2007 results (52
per cent). Around a third gave the reason ‘no need due to previous innovations’ and
twenty seven per cent chose ‘factors constraining innovation’. The majority of non-
innovators in the periods covered by successive surveys appear to take that decision
in the light of their market and internal circumstances, while around a quarter report
facing insuperable constraints.

37
UK Innovation Survey 2009

Sector differences are charted below.

Figure 2.22: Reasons for not innovating by sector (non-innovators only)

100.0%

80.0%

60.0%

40.0%

20.0%

.0%
Manufacturing

Manufacturing
Construction
Primary sector

Knowledge-

distribution

Other services
Engineering-

intensive

Retail &
services
based

Other

No need due to market conditions No need due to previous innovations


Factors constraining innovation

· All sectors report ‘No need due to market conditions’ as the most common
reason for not innovating.

· Less innovative sectors during the period such as construction and other
services tended to report “other constraining factors” as a reason for not
innovating, rather than there being no need to due to previous innovations.

· The variability across sectors for not innovating during the period emphasizes
again the differences in product life cycles.

2.7.2 Specific Constraints


Respondents were offered a list of specific constraining factors. Table 2.12 shows
the shares of all respondents who reported these as having various degrees of
importance.

38
UK Innovation Survey 2009

Table 2.12: Innovation constraints (percentage of innovation active firms)

Constraint Not
important Low Medium High
Excessive perceived economic
26.2 20.2 27.6 20.3
risks
Cost factors Direct innovation cost too high 29.4 18.1 25.8 21.1
Cost of finance 27.6 22.7 22.2 22.3
Availability of finance 29.8 25.5 19.0 20.4
Lack of qualified personnel 32.1 31.8 22.5 8.4
Knowledge Lack of information on
36.2 39.9 15.5 3.3
factors technology
Lack of information on markets 35.9 38.9 16.2 3.3
Market dominated by
33.5 30.7 20.1 10.4
established businesses
Market factors
Uncertain demand for
32.4 28.5 24.5 9.1
innovative goods or services
Regulatory UK Government regulations 41.3 29.1 13.5 10.4
factors EU regulations 46.2 28.3 10.9 8.8

· Consistent with other surveys, cost factors, including direct resource costs, risks
and finance were reported as of some importance with greater frequency than
other forms of constraint. And, they were reported with more importance by a
higher share of firms than in the previous survey.

Enterprises without innovation activity, due to specific constraint factors attributed


significantly lower levels of importance to the range of constraints, as summarised in
Table 2.13.

39
UK Innovation Survey 2009

Table 2.13: Innovation constraints (percentage of non-innovation active firms)

Constraint Not
important Low Medium High
Excessive perceived economic
61.3 8.1 9.8 8.9
risks
Cost factors Direct innovation cost too high 62.9 7.2 7.9 9.9
Cost of finance 61.0 8.4 8.9 10.1
Availability of finance 61.3 9.7 8.0 9.3
Lack of qualified personnel 64.0 12.5 7.2 4.3
Knowledge Lack of information on
66.2 13.6 6.0 2.3
factors technology
Lack of information on markets 66.7 13.6 5.5 2.0
Market dominated by
62.5 10.5 8.5 6.4
established businesses
Market factors
Uncertain demand for
63.7 9.6 8.9 5.8
innovative goods or services
Regulatory UK Government regulations 67.2 11.2 5.1 4.5
factors EU regulations 69.4 10.3 4.7 3.5

· Non innovators rating of the barriers is almost a mirror image of the results for
innovators with ‘not important’ the predominant response and only a quarter
rating constraints as ‘high’.

· Innovation active enterprises, having experienced barriers while innovating are


much more likely to report higher importance to specific constraints.

2.8 General Economic Information


The survey concludes by asking about some general economic information about the
firm including any public support for innovation, their turnover in 2008 and the
number of employees in 2008 along with the proportion with a degree or higher
qualification.

2.8.1 Public Support for Innovation


Re-introduced for the 2009 survey, the question on public support reveals few UK
enterprises claim any support. Figure 2.23 reveals medium sized firms have the
largest share in receipt of local/regional support which is also the main source of
support for all enterprises.

40
UK Innovation Survey 2009

Figure 2.23: Public support for innovation by size (percentage of all


enterprises)

10%

8%

5%

3%

0%

Large (250+)
Small (10-49

Medium (50-
All

employees)

249)

UK local or regional authorities UK central government


European union institutions or programmes

2.8.2 Skills and Innovation


Apart from investment in research, knowledge, equipment and software, the skills
and capabilities of staff and managers are a vital ingredient in successful innovation.
They are the source of ideas and the main elements in the absorptive capacity, that
enterprises need to engage effectively with external sources of knowledge about
opportunities and technologies. In the survey, graduate level employment is collected
as an indicator of innovation related skills in business. Table 2.14 shows the shares
of the employees in 2008 with degree level qualifications in Science and Engineering
and other disciplines 12.

12The coding of the skills question results has made it impossible to remove missing values from the analysis. This is likely to have
lowered the average proportion of all graduates within this analyses.

41
UK Innovation Survey 2009

Table 2.14: Shares of employees that hold a degree in Science or Other


subjects by business size

Science graduates Other graduates


Not Not
Firm Innovation innovation Innovation innovation
size active active All active active All
Small 5.7 1.6 4.1 9.4 3.6 7.2
Medium 4.7 2.6 4.1 7.8 5.2 7.1
Large 5.3 0.9 3.4 8.1 2.3 5.7
All 5.2 1.4 3.8 8.3 3.2 6.4

· Innovative active enterprises have more than double the share of employees
educated at degree level in science or other subjects than their non-innovative
equivalents.

· Overall, Innovative business have around five per cent of science graduate
employees and 8 per cent of other graduates against one per cent science and
three per cent other graduates in non-innovative business. This were lower than
the proportion of employees with a graduate (or above qualification) in 2006.

Figure 2.24: Shares of graduate employees by sector

20%

15%

10%

5%

0%
Manufacturing

Manufacturing
Total

Construction
Primary sector
Knowledge-

distribution
Other services
Engineering-
intensive

Retail &
services

based

Other

science graduates (innovation active) other graduates (innovation active)


science graduates (non-innovation active) other graduates (non-innovation active)

42
UK Innovation Survey 2009

· Research and experimental development businesses report the largest share


with Science and Engineering degrees, whereas financial services and creative
industries have higher shares of ‘other’ graduates (Figure 2.24).

43
UK Innovation Survey 2009

Chapter 3. Panel Analysis


Although the UK Innovation survey was never intended to be a
longitudinal survey, the sampling method used to collect data has
meant that a number of businesses have appeared in consecutive
surveys. In fact, if we take the last three “waves” of the Innovation
survey (UKIS 2005, 2007 & 2009) there are 4,054 such businesses.
By collecting together the responses given by each of these
businesses we can construct a panel dataset that covers, for most
of the survey topics, a seven year period 13 from January 1 2002 to
December 31 2008.

3.1 Introduction
This sort of panel data is very useful for the deeper analysis of innovation. Not only
does it allow like-with-like comparisons to be made over a period of time, it can also
help to answer questions about behaviour and dynamics of change that individual
cross sections cannot explain.

In this section we present the main results from our analysis of this panel. However,
it is important to note that these results are not statistically representative of all
businesses in the UK, although there is a reasonable degree of similarity in their
innovation characteristics. We present these finding with the purpose of
understanding better the nature of innovation over time. The analyses that follow are
based on 4,054 unweighted responses that the panel comprises.

3.2 Panel Demographics


As previously stated, the panel is not representative of all businesses in UK.
Notably, we find that the panel contains proportionately more large and medium-
sized firms than there are in the population. In part, this is a reflection of the
sampling approach which takes a census of all large firms. We also find that the
Midlands, Wales and Northern Ireland are over-represented, whilst London and the
South East are under-represented. In terms of industry, manufacturing is over
represented and retail and distribution is under-represented.

Nonetheless, the panel provides a significant number of businesses of various sizes,


across the UK and industries and therefore we can be reasonably confident that the
findings presented here are indicative of the nature and behaviour of innovation in
the UK.

13 By means of successive survey reference periods.

44
UK Innovation Survey 2009

We show the composition of the panel – in terms of business size, location and
industry – below in Table 3.1. Perhaps not surprisingly there has been very little shift
in the geographical locations or the industry these businesses operate in. However,
businesses in our panel do appear to have grown in size.

Table 3.1: Panel demographics (percentage of businesses)

2005 2007 2009


Business size
Small 50 49 48
Medium 25 25 26
Large 25 26 26
100 100 100
Region
North East 6 6 6
North West 9 9 9
Yorkshire and The Humber 9 9 9
East Midlands 10 10 10
West Midlands 10 10 10
East of England 8 8 8
London 8 8 8
South East 10 10 10
South West 9 9 9
Wales 7 7 7
Scotland 7 7 7
Northern Ireland 6 6 6
100 100 100
Industry
Primary sector 1 1 1
Engineering-based manufacturing 14 14 14
Other manufacturing 18 18 18
Construction 8 8 8
Retail & distribution 17 18 18
Knowledge-intensive services 15 15 15
Other services 27 27 27
100 100 100

3.3 Innovation activity


We first look at the overall innovation performance of businesses in our panel based
on our measure of “innovation activity”. Here, for completeness, we again define
innovation activity according to whether a business was either:

45
UK Innovation Survey 2009

· A product innovator (introduced new or significantly improved goods or services);


or a

· process innovator (introduced new or significantly improved methods for


producing products); or

· invested in activities related to innovation (resources allocated to activities such


as R&D and training for innovation activities); or

· if the business had ongoing or abandoned innovation activities.

The prevalence of innovation activity in our panel for each of the surveys is shown in
Table 3.2. This table also shows the proportion of businesses that engaged in the
various modes that our definition captures, which are covered in more detail later in
the chapter.

Table 3.2: Percentage of enterprises who were innovation active in each survey
wave, by type of activity

Type of activity 2005 2007 2009


Innovation active 66 73 62
Innovation investments 63 72 59
Product innovator 30 25 26
Process innovator 22 16 15
Abandoned or incomplete innovation activities 12 12 8

Table 3.2 reveals that innovation activity among businesses has fluctuated during the
lifetime of the panel. As a result of a rise in the proportion of firms investing in
activities related to innovation, the share of innovation active businesses increased
by 11 per cent between the 2005 and 2007 surveys. However, innovation activity
then decreased by 15 per cent between 2007 and 2009, through lower shares with
innovation investments.

This pattern of change in innovation activity within the panel is broadly inline with that
seen in each of the cross-sectional surveys. However, we see here that the
proportions of innovation active businesses for each survey are higher than their
cross-sectional equivalents, due to the compositional differences between the panel
and cross-sectional datasets.

In Figure 3.1 we present the proportion of innovation active businesses according


their location in the UK. What we see here is that innovation activity does not vary a
great deal across the UK. And we also find that nearly all of the regions display the
same pattern of change as the UK as a whole – i.e. innovation activity increased
between 2005 and 2007, and decreased between 2007 and 2009.

The only exception to this was in the South East region where activity did not change
between the 2005 and 2007 surveys.

46
UK Innovation Survey 2009

Figure 3.1: Innovation activity in the regions

2005 2007 2009

100%

80%

60%

40%

20%

0%
EM E SW Scot Y&H Wal SE NE NI NW WM Lon

The greatest change in innovation activity occurred in East Midlands, with an 18 per
cent increase between the 2005 and 2007 surveys, then more than offset by a 28 per
cent per cent fall between the 2007 and 2009 surveys. Northern Ireland saw the
smallest changes.

Figure 3.2: Innovation activity by business size

2005 2007 2009

100%

80%

60%

40%

20%

0%
Large
Medium

Small

In terms of businesses size (Figure 3.2) there is also little difference. In the 2005 and
2007 surveys, medium and large firms in our panel were more active than small
firms. However, whereas activity in small firms has changed little between surveys,

47
UK Innovation Survey 2009

the large and medium-sized businesses have seen greater swings and the gap has
narrowed, as we discussed looking at the general indicators in section 2.

There are, however, greater differences when it comes to sectors (Figure 3.3). In
this case, not only do certain sectors appear to be more active than others, but there
is more variation in activity levels from one survey to next.

In particular, the manufacturing sectors (Engineering based and other) and the
knowledge-intensive services have higher shares of innovation activity than the other
sectors. But the level of activity varies little between surveys in these sectors –
suggesting some degree of persistence in the inter-sectoral patterns of innovation
behaviour.

In contrast, we find that the distribution, services and construction industries are less
active and display a greater change in activity from one survey to the next. Indeed,
the greatest change in innovation activity occurred in Other Services and
construction where shares with activity increased by 30 per cent and 26 per cent,
respectively, between 2005 and 2007, and then fell 22 per cent and 24 per cent,
respectively, in the following period.

Figure 3.3: Innovation activity by sector

2005 2007 2009

100%

80%

60%

40%

20%

0%
Knowledge-

Construction
Manufacturing

Manufacturing

Other services
Primary sector

distribution
intensive
Engineering-

services

Retail &
Other

based

3.3.1 Persistence of Innovation Activity


The overall proportion of innovation active firms in the panel for each survey iteration
may disguise a more dynamic pattern of behaviour at micro level. It is clear from
Table 3.2 that a large number of businesses are innovation active - but not
necessarily consistently. The panel dataset can be used to show how firms move
into or out of the innovation categories between surveys. Figure 3.4 shows the

48
UK Innovation Survey 2009

proportion of businesses that were always active, never active, or intermittently active
across the surveys.

Figure 3.4: Persistence of innovation activity

Always Never
innovation innovation
active, 40% active, 10%

Sometimes
innovation
active, 50%

Here we find the vast majority (some 90 per cent) of businesses in our panel were
innovation active at some stage. This comprised 40 per cent of businesses that were
persistently active, i.e. innovation active in every survey, and 50 per cent of
businesses who innovate irregularly, i.e. active on one or two but not all three
surveys. Just ten per cent of businesses in the panel were never innovation active.

We have already seen that innovation activity various somewhat across different
sectors, and we can also see how persistent innovation activity is among the sectors.
This is shown in Table 3.3.

49
UK Innovation Survey 2009

Table 3.3: Persistence of innovation activity in industry (percentage of firms in


each sector)

Never Occasionally Always


Sector active active active
Engineering-based
6 38 56 100
manufacturing
Other manufacturing 5 40 56 100
Knowledge-intensive services 6 48 46 100
Primary sector 20 41 40 100
Other Services 12 58 30 100
Retail & Distribution 15 55 30 100
Construction 19 57 24 100
All 10 50 40 100

From Table 3.3 we see that manufacturing industries have the highest proportion of
businesses that are always innovation active. In fact, the majority of firms in this
sector are always innovation active – some 56 per cent. Furthermore, they also have
the lowest proportion of businesses that never innovate. Again, we noted in section1
there appears to be a minimum level (likely sector dependent) of innovation which
firms need to achieve in order to survive.

Knowledge-intensive services (which includes the R&D service sector) is another


sector where a large proportion of businesses are persistently innovation active (46
per cent), and only a small proportion never innovate.

Within the remaining sectors there is evidence of much more churn. Here, the
majority of firms move in and out of innovation activity irregularly.

3.3.2 Transitions
As an overall indicator of movements between states of innovation activity, we can
use transition matrices to look at change. These matrices show the proportion of
businesses moving between different states of activity between any two consecutive
years.

Table 3.4: Transitions between innovation activity status (percentage of firms)

Not active Innovation Active


Not active 51 49 100
Innovation Active 24 76 100
Source
For example, Table 3.4 shows the transitions between innovation activity in our
panel. This table tells us that 49 per cent of businesses that were not initially
innovation active will be innovation active in the following period. Furthermore, some

50
UK Innovation Survey 2009

76 per cent of innovation active businesses will be innovation active the following
period.

3.4 Product and process innovation


The proportion of businesses in our panel that came up with new or significantly
improved products or processes has decreased slightly over the life of the panel.

At the start of the panel period, 30 per cent of businesses said they introduced a new
or significantly improved product, which then fell to around 25 per cent in the last two
surveys.

There is a similar picture with process innovation where the proportion of businesses
developing new or significantly improved processes fell from 22 per cent in the first
survey to around 15 per cent in both the subsequent periods. We can see from the
Figure 3.5, below, just how the proportions have changed.

Figure 3.5: Product and process innovation

100%

90%

80%

70%

60%

50%

40%

30%
Product
20% Innova ti on
Proces s
10% i nnova ti on

0%
2005 2007 2009

51
UK Innovation Survey 2009

We also see how product and process innovation varies according to business size,
location and industry in Figures 3.6-3.11. For ease of comparison, these are
presented side-by-side.

Some interesting features to note from these figures include:

In terms of business size (Fig 3.6 & 3.7) we see that there are substantial falls in the
proportion of product and process innovation across all business sizes between the
2005 and 2007 surveys. However, from this point, differences do occur in our panel.
For instance, there is an increase in product innovation within large and small-sized
firms between the 2007 and 2009 surveys, addressing to some degree the decline
seen in the previous period. Yet at the same time process innovation within large
and small firms decreased further.

In terms of sectors (Fig 3.8-3.9), there is also evidence of different product and
process innovation behaviour. In sectors with typically high levels of product
innovation, such as manufacturing and the knowledge-intensive services, the picture
is almost cyclical. But in sectors with generally lower product innovation, the pattern
is less clear. With process innovation we see a mixed picture with continual declines
in process innovation in some sectors (namely manufacturing and the primary sector)
and a combination of declines and increases in others.

52
UK Innovation Survey 2009

Figure 3.6: Product innovation by Figure 3.7: Process innovation by


business size business size

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
Large Medium Small Large Medium Small

2005 2007 2009 2005 2007 2009

Figure 3.8: Product innovation by sector Figure 3.9: Process innovation by sector

50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Engineering-

Knowledge-

Other services

Primary sector
distribution

Construction
Manufacturing

Engineering-

Knowledge-

Other services

Primary sector
distribution

Construction
intensive

Manufacturing
Retail &

intensive

Retail &
based
Other

based
Other

2005 2007 2009


2005 2007 2009

Figure 3.10: Product innovation by GOR Figure 3.11: Process innovation by GOR

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
EM

WM
SE

NE

EM

WM
Y&H

SE

NE
NI

Lon

NW
SW
Scot

Y&H
NI

Lon

NW
SW
Scot
Wal

Wal

2005 2007 2009 2005 2007 2009

53
UK Innovation Survey 2009

Across the regions, the picture is also unclear (Fig 3.10-3.11). Again, with product
innovation the outlook is almost cyclical where the proportion of innovation
decreased sharply between 2005 and 2007 but then rose between 2007 and 2009;
and with process innovation we see a gradual decline in most regions.

It appears then that product and process innovation is much less persistent that
innovation activity – that is, that there is an underlying pattern of innovation
investment with more occasional introductions into the market or into use of specific
new or improved goods, services or processes for their production and supply.

3.4.1 Persistence of product and process innovation


Given the variability and proportion of businesses that engage in product and
process innovation, it is not surprising we find that firms do not persistently innovate
in these forms.

In Table 3.5 we show the proportion of businesses in our panel that persistently,
occasionally, or never product or process innovate.

Table 3.5: Persistence of product and process innovation (percentage of all


firms)

Never active Occasionally active Always active


Product innovator 52 38 10 100
Process innovator 65 32 4 100

This Table reveals that the majority of businesses did not bring any new or
significantly improved products or processes to the market at any time during the
panel’s duration. Half (52 per cent) of the businesses in the panel never
implemented new or improved products and just under two-thirds (65 per cent) never
innovated in process.

Nonetheless, there is still a sizeable proportion (32 to 38 per cent) of businesses that
did bring new or improved products and process to the market, albeit on an irregular
basis, and a small proportion (4 to 10 per cent) that innovated persistently. The
evidence from these surveys suggests that that product and process life-cycles are,
on average, considerably longer than the reference period (three years) of the
surveys, with the irregularity of innovation a reflection of the varying life spans of
different products and processes, and the time they take to develop. These patterns
of innovation over time may be taken to be useful additional indicators of UK
business propensity to product and process innovation.

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UK Innovation Survey 2009

3.4 Abandoned and incomplete innovation


Over the course of the panel life time there has been a decline in the proportion of
businesses reporting abandoned or incomplete innovation projects 14.

Table 2.6 reveals that in 2005 and 2007 only 12 per cent of businesses reported
ongoing or failed innovation projects, which decreased to eight per cent in 2009.

Table 3.6: Percentage of enterprises who had abandoned or incomplete


innovation projects in each survey wave.

2005 2007 2009


Abandoned or incomplete innovation projects 12 12 8

This proportion is fairly small but some 20 per cent of firms have reported ongoing or
failed projects at some stage, and two per cent of businesses persistently had
projects in the pipeline or abandoned.

The outcome of these projects are not known, however there is evidence to suggest
that many businesses have these projects running alongside new or significantly
improved products or process brought to the market.

For example, Figure 2.12 shows that in the 2009 survey 84 per cent of businesses
with ongoing or incomplete innovation had introduced a product or process to the
market in the same period. An indication that some businesses are already
preparing for future innovation projects as current innovations hit the market.

Figure 3.12: Ongoing or failed projects with product or process innovation

100%

80%

60%
Product or process
Product or process

innovator, 84%
innovator, 83%

Product or process
innovator, 71%

40%

20%

0%
2005 2007 2009

14 The survey changed from one question on ongoing and abandoned to two separate questions in 2009

55
UK Innovation Survey 2009

3.5 Innovation investments


Enterprises need to assign resources to innovation and in Table 2.7 we present the
proportion of businesses reporting expenditure on various activities.

Table 3.7: Percentage of enterprises who engaging in activities related to


innovation in each survey wave.

2005 2007 2009


Any activity 63 72 59
Internal R&D 32 31 32
Acquisition of external R&D 13 13 12
Acquisition of machinery, equipment and software 49 63 46
Acquisition of external knowledge 15 14 11
Training for innovative activities 42 37 25
All forms of design 19 19 20
Market introduction of innovations 25 37 33

Over the three surveys we see that a large proportion of businesses in our panel
have invested in some form of activity related to innovation 15. At the start of the
panel period, 63 per cent of businesses reported investment. This rose to 72 per
cent in 2007, largely through increased machinery, equipment and software
purchasing, before falling to 59 per cent in 2009 as purchasing decreased again.

The high levels of investment propensity from survey to survey suggest that there is
some persistency in investment. Table 2.8 summarises the proportion of businesses
that always invest, intermittently invest or never invest in different types of innovation
activities.

In all, we find that some 37 per cent of businesses in the panel persistently invested
in some form of activity related to innovation. And a further 52 per cent have
invested at some stage during the panel lifetime.

15The survey changed from one question each for Acquisition of machinery, equipment and software and Market introduction of
innovations to separate questions for each component in 2009.

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UK Innovation Survey 2009

Table 3.8: Persistence of engaging in activities related to innovation


(percentage of all firms)

Never Occasionally Always


active active active
All 11 52 37 100
Acquisition of machinery, equipment and 100
18 59 23
software
Internal R&D 38 48 14 100
Market introduction of innovations 45 45 10 100
Training for innovative activities 38 52 10 100
All forms of design 63 32 5 100
Acquisition of external R&D 74 23 3 100
Acquisition of external knowledge 71 27 2 100

However, we also find that some areas of investment receive more persistent
investment than others. For instance, we find that 23 per cent of businesses always
invest in machinery, equipment and software, and a further 59 per cent invest
intermittently. We also find a sizeable proportion persistently invest in internal R&D,
the market introduction of innovations (which includes market research) and training
for innovative activities, all of which can thought of as on-going activities necessary
to support current and future innovations.

Not all types of activities receive the same commitment to investment. Activities such
as design, acquiring external R&D and external knowledge are far less persistent as
the majority of businesses never invest in these areas. Between 27 and 32 per cent
of businesses intermittently invest in these activities – perhaps to meet the needs of
new product or process innovations.

3.6 Strategic Innovation


Innovation is not wholly about product and process innovation; businesses can also
make major changes their organisation, structure or practices in order to improve
internal efficiency or effectiveness. We term this “wider” innovation.

The proportion of wider innovators in our panel is summarised in Table 3.9, which
also shows the reported proportions of businesses that reported engaged in the
various types of activity that collectively define “wider” innovation.

Table 3.9: Percentage of wider innovators in each survey wave

2005 2007 2009


Wider innovator 39 37 30
New or significantly improved corporate strategy 19 17 13
New management techniques 19 15 12
Major changes to organisational structure 21 24 18
Changes to marketing structure 23 20 15

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UK Innovation Survey 2009

On the whole, wider innovation in the panel is relative low. Over the life time of the
panel, the proportion of wider innovators has declined steadily from 39 per cent in
2005 to 30 per cent of businesses in 2009, with similar patterns of reducing shares of
businesses reporting each of the four categories of wider innovation.

Furthermore, we see from Figure 2.13 that wider innovation is something that is more
occasional than regular. Whilst 39 per cent of businesses in the panel reported no
wider innovation, the majority (49 per cent) of business did report such changes at
some point. Twelve per cent of firms were wider innovators through all three surveys.

Figure 3.13: Persistence of wider innovation

Persistent wider
innovator, 12%

Occasional wider
innovator, 49%

No wider
innovation, 39%

3.7 Barriers to innovation


The survey asks all businesses about a range of constraining factors and their effect
on their ability to innovate. Table 2.10 shows the total proportion of businesses that
said a barrier was in some way a constraint to innovation (ranked high, medium or
low).

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UK Innovation Survey 2009

Table 3.10: Constraints on innovation (percentage of all firms rating “high”,


“medium” or “low”)

2005 2007 2009


Excessive perceived economic risks 53 39 55
Cost of finance 53 41 54
Direct innovation cost too high 53 40 54
Availability of finance 49 38 52
Uncertain demand for innovative goods or services 51 40 52
Market dominated by established businesses 51 39 52
Lack of qualified personnel 54 42 50
Lack of info on technology 50 38 48
Lack of info on markets 49 37 48
UK Gov regulations 47 35 43
EU regulations 44 32 40

Looking at Table 2.10 we can see that cost factors (including excessive risk, high
costs, cost and availability of finance) and market factors (including uncertain
demand and market domination) tend to be considered by many businesses to be a
constant constraint. Particularly in 2005 and 2007 when over a half of all
respondents in the panel perceived these as obstacles.

When we look at how perceptions have changed over time, Table 2.10 reveals that
there is not a great deal of difference between the 2005 and 2009 surveys; cost and
market factors are marginally up while knowledge and regulatory factors are down
slightly.

However, there was a marked drop in the share of panel firms perceiving barriers in
the 2007 survey (i.e. for 2004 to 2006) which coincided with a marked rise in
innovation activity at the same time.

Indeed, comparing the pattern of innovation activity and perceptions of barriers, there
appears to be some correlation: higher proportions of innovation appear associated
with a softer view on constraints, whereas lower innovation activity is correlated with
more businesses perceiving constraints as obstacles.

59
UK Innovation Survey 2009

Table 3.11: Constraints on innovation by innovation activity (percentage of all


firms rating “high”, “medium” or “low”)

2005 2007 2009


Innovation Not Innovation Not Innovation Not
active active active active active active
Cost 80 30 62 15 78 34
Market 72 27 56 15 72 33
Knowledge 74 28 58 14 69 29
Regulation 61 25 45 12 56 24

Typically, we find that firms that are innovation active are more likely to report
obstacles than those that aren’t (this can reasonably be taken to reflect that
constraints are experienced during the innovation process). Table 2.11 shows the
shares of businesses reporting constraints, depending on whether they were
innovation active or not (for ease, related barriers have been grouped together).
Here, as an example, we see that 80 per cent of innovation active business in 2005
said cost was a constraint, compared to just 30 per cent of non-active businesses.

Table 2.11 does not distinguish between the firms ranking barriers “high”, “medium”
or “low”. To present the changes in the number of businesses that see certain
constraints as being particularly tough, Table 3.12 has been constructed to show the
proportion of businesses ranking constraints as “high”.

Table 3.12: Constraints on innovation by innovation activity (percentage of all


firms rating “high”)

2005 2007 2009


Factor Innovation Not Innovation Not Innovation Not
active active active active active active
Cost 55 19 43 9 47 19
Market 43 15 34 7 45 17
Knowledge 56 21 45 10 56 21
Regulation 31 13 25 5 36 15

This table shows a slightly different picture to Table 3.11 with more businesses
reporting knowledge factors as a “high” constraint to innovation than cost. The cost
of innovation still features highly but for innovation active businesses these are
perceived as less of barrier now than what they were in 2005, despite the 2009
survey capturing the early stages of the recession)

3.8 Context for innovation


As previously noted, the advantage of panel data is that we can look at the changes
in behaviour across the same businesses over time. And because we’re examining

60
UK Innovation Survey 2009

the same businesses each time, we can be sure that any changes reported are real
and do not arise as a result of any compositional differences in the survey samples.

However, because the survey was not originally designed to be longitudinal this does
not hold true for the all indicators. Certain questions are directed at specific groups
of respondents (for instance innovators only) and so as the businesses in these
groups changes from survey to survey, it means we no longer have the
compositional consistency we desire. For completeness, we include the results for
these indicators, but it should be noted that these do not necessarily represent real
changes within the same businesses.

Businesses are asked to rank various factors behind their decision to innovate.
These factors are presented in Table 2.13, along with the proportion of innovative
businesses that rated them as being “high”.

Table 3.13: Effects/deciding factors (percentage of all firms rating “high”)

Factor 2005 2007 2009


Improve quality of goods or services 40 27 51
Increase value added 32 23 38
Entering new markets or increase market share 32 24 45
Increase range of goods 29 22 37
Meet regulatory requirements 29 15 33
Reducing costs per unit produced or provided 26 17 35
Improve flexibility for producing goods or services 24 16 27
Increase capacity for producing goods or services 23 15 23
Reduce environmental impacts or improve health and safety 18 12 30

Looking at the proportion of respondents who answered ‘high’ in each category in


each period indicates a certain degree of customer-focused approach to innovation.
Improving the range and quality of goods and services both appear fairly
predominantly among the various factors in each survey.

Generally, the drivers of innovation shift somewhat from survey to survey, possibly as
a result of the having different businesses in each period. However, there may be
evidence of the onset of recession having an effect on decisions to innovate.
Compared to 2007, the 2009 survey showed a marked increase in the share of
businesses with the objective to innovation to reduce unit costs and increase value
added.

Conversely, the survey also asks the businesses that did not innovate why they did
not. Here, the trend is clearer with the majority of firms in each survey citing market
conditions as the main reason. This doesn‘t appear to have changed much in the
last two surveys, although increasing proportions of non-innovators are remaining so
due to previous innovations and other factors constraining innovation.

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UK Innovation Survey 2009

Table 3.14: Reasons for not innovating (percentage of all firms rating “high”)

Reason 2005 2007 2009


No need due to previous innovations 28 26 33
No need due to market conditions 43 51 48
Factors constraining innovation 20 18 27

62
UK Innovation Survey 2009

Annex A: Technical details of the


UK Innovation Survey 2009
Methodology
The UK Innovation Survey is funded by the Department for Business, Innovation &
Skills (BIS). The survey was conducted on behalf of BIS by the Office for National
Statistics (ONS), with assistance from the Northern Ireland Department of Enterprise,
Trade and Investment (DETINI).

The UK Innovation Survey is part of a wider Community Innovation Survey (CIS)


covering European countries. The survey is based on a core questionnaire
developed by the European Commission (Eurostat) and Member States. This is the
Sixth iteration of the survey (CIS 6). CIS5, covering the period 2006 to 2008, was
carried out in 2007; CIS4, covering the period 2004 to 2006, was carried out in 2005;
and CIS 3, covering the period 1998 to 2000, was carried out in 2001.

The UK Innovation Survey 2009 sampled 29 thousand UK enterprises.

The survey was voluntary and conducted by means of a postal questionnaire. A copy
of the questionnaire used can be found on:
http://www.bis.gov.uk/policies/science/science-innovation-analysis/cis/cis6-
questionnaire

Coverage and sampling


The survey covered enterprises with 10 or more employees in sections C-K of the
Standard Industrial Classification (SIC) 2003. The 2009 and 2007 surveys included
the additional motion picture and video production sector (SIC 92.1), which was
excluded from previous surveys. The 2005 survey included additional sectors Sale,
maintenance and repair of motor vehicles (SIC 50), Retail Trade (SIC 52) and Hotels
and restaurants (SIC 55) excluded from the 2001 survey. The sample was drawn
from the ONS Inter-Departmental Business Register (IDBR) in December 2006.

Response and Weighting


The questionnaires from the initial survey were distributed on March 31 2007. Valid
responses were received from 14,281 enterprises to give a response rate of 49 per
cent.

The results in this article are based on weighted data in order to be representative of
the population of firms. The responses were weighted back to the total business
population of those in the IDBR. On average each respondent represents 13
enterprises in the population.

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UK Innovation Survey 2009

Changes over time – 2007 and 2009 surveys


Comparisons can be made with the 2007 UK Innovation Survey, which measured
innovation over the period 2004-2006. The sectoral coverage of the Innovation
Survey in 2007 remained the same. However, other differences between the surveys;
such as in the sample design and weighting methodology, are not accounted for.

Division
Enterprises are defined by the Standard Industrial Classification of Economic
Activities – SIC(2003). SIC(2003) is a hierarchical five digit system. Each division is
uniquely defined at the two digit level. Division are broken down into groups (3 digits).
Then into classes (4 digits) and, in several cases, into subclasses (5 digits).

· Division 10 to 14 - Mining and Quarrying

· Division 15 to 22 - Manufacture of food, clothing, wood, paper, publish & print

· Division 23 to 29 - Manufacture of fuels, chemicals, plastic metals & minerals

· Division 30 to 33 - Manufacture of electrical and optical equipments

· Division 34 to 35 - Manufacture of transport equipments

· Division 36 to 37 - Manufacture not elsewhere classified

· Division 40 o 41 - Electricity, gas & water supply

· Division 45 Construction

· Division 50 to 51 - Wholesale Trade (incl. cars & bikes)

· Division 52 - Retail Trade (excl. cars & bikes)

· Division 55 - Hotels & restaurants

· Division 60 to 63 - Transport

· Group 64.1 - Post and courier activities

· Group 64.2 - Telecommunications

· Division 65 to 67 - Financial intermediation

· Division 70 - Real estate activities

· Division 71 - Renting of machinery, equipment, personal, and household goods

· Division 72 - Computer and related activities

64
UK Innovation Survey 2009

· Group 73.1 - Research and experimental development on natural sciences and


engineering

· Group 73.2 - Research and experimental development on social sciences and


humanities

· Group 74.2 - Architectural and engineering activities and related technical


consultancy

· Group 74.3 - Technical testing and analysis

· Division Rest of 74 - Other business activities

· Class 92.11 - Motion picture and video production

Sectors of industry
Enterprises were clustered into seven sectors of industry. Those sectors are defined
as followed by their SIC(2003) codes:

Sector SIC codes

· Primary sector 10 to14, 40 to 41

· Engineering-based manufacturing 28 to 35

· Other manufacturing 15 to 27, 36 to 37

· Construction 45

· Retail & distribution 50 to 52

· Knowledge-intensive services 64.2, 65 to 67, 72 to 73, 74.1 to 74.4

· Other services 55, 60 to 64.1, 70 to 71, 74.5 to 74.8, 92.1

65
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