Analysis of the Community Innovation Survey 2007 - 2011

Introduction

The Scottish Government Economic Strategy (GES) identifies three key components of economic growth: productivity, participation and population (figure 1). It notes that if Scotland is to become a more attractive destination for investment it will need to improve its productivity and international competitiveness. Since labour productivity (measured by GDP per hour worked) is 2.8% higher in the UK than Scotland, government has set a long-term target for Scotland to rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017.

In diagnosing Scotland's poor productivity performance, GES notes there is compelling international evidence that higher levels of investment, skills, innovation and enterprise can generate improvements in productivity. It recognises that Scotland's businesses are the primary driver of sustainable economic growth and that national competitiveness depends on the competitiveness of individual Scottish firms. As such, the quality and focus of public support for business and innovation is geared to stimulating demand for investment, innovation and skills in pursuit of higher productivity and increased competitiveness.

Investment in R&D is one way of measuring a nation’s innovation performance. However, a large proportion of firms develop their process, product, organisational or marketing innovations without carrying out any R&D, therefore, innovation surveys are increasingly used to better understand the role of innovation in firms’ performance, its determinants and the characteristics of innovative firms. Consequently, the results of UK innovation surveys are of interest to the enterprise agencies to help shape our interventions. SE has a key role in addressing Scotland’s innovation agenda, both as a delivery body and also as a catalyst in creating partnerships with other key players in the Scottish economy. If policies to promote innovation are to be effective, they need to take account of the type and extent of current activity. Within the current economic context, getting the innovation support process right is likely to be critical to future economic success.

SE’s Innovation Policy

In 2008 SE launched a new Innovation Policy that was driven by a number of important principles, including a stronger focus on companies, reflecting the objective to deepen and widen business innovation in Scotland and a recognition that innovation is one of a range of inter-related activities, that will drive greater levels of company growth and improved productivity levels in Scotland. A feature of the new operational policy is an enhanced Innovation Service, which delivers specialist advice and support to companies, with the explicit aim of increasing the number of companies engaged in innovation activity thereby building on the work already in place to support investment in R&D. The core of the new approach was the delivery of a programme of more visible, wide-ranging support services and moving forward the plan is to continue developing the approach, reflecting the increasing economic challenge that Scotland faces.

Innovation Survey Results 2007

Analyses of previous innovation surveys have been used inform SE’s understanding of innovation activity in Scotland and subsequent interventions. This work is a detailed analysis of the results of the 2007 survey. It supplements and updates previous reports that were prepared on the results of the 2001 and 2005 surveys. Details of the methodology are provided in Appendix A. Where available, some 2009 survey results for the headline indicators are included when time series data is being reported. A summary of 2009 headline results is provided in Appendix B.

Executive summary

• The gap in between the proportion of innovation active firms in Scotland and the UK closed in 2007. There was no significant difference between the figures for Scotland (63.4%) and the UK (63.7%).
• However, Scotland ranked in 9th place out of the 12 UK regions and its relative position remained the same as in the 2005 survey.
• Innovation activity levels vary depending on the size of the firm and industry sector.
• Innovation activity levels tend to increase as the firm size increases and the difference between the innovation performance of Scotland and the UK tends to diminish as the firm size increases.
• A smaller proportion of small firms in Scotland are innovation active compared to the UK average.
• The likelihood that firms will engage in wider innovation activities also increases with the size of the firm and larger firms account for most innovation activity in Scotland.
• A lower proportion of small firms in Scotland have non UK regional markets than the average for the UK.
• Across the UK the proportion of product innovators and ‘novel’ product innovators fell between 2005 and 2007. Scotland’s performance dropped further than the UK as a whole.
• Scotland’s performance against process innovation was slightly better than the UK overall in 2007, however, there was little variation between the 12 UK regions.
• The proportion of novel process innovators fell in Scotland and the UK, and the proportionate fall was slightly greater in Scotland.
• A higher proportion of firms in Scotland had the public sector and consumers as main customers with a lower proportion having other business customers. Their markets were also more locally based and any co-operation agreements with other businesses or organisations tended to be more locally based.
• However, customers and markets vary depending on the size of the firm. A bigger proportion of larger firms have business customers while a greater proportion of smaller firms have consumers and the public sector as customers.
• Small firms are more likely to have local markets. The proportion of large firms with European markets and markets in other countries is around double that of small firms.
• The proportion of large firms with overseas markets is around double that of small firms.
• Large firms are more likely to have innovation expenditure than small firms and small firms are less likely to cite costs as a barrier to innovation activity.
• The strongest performing innovation active sectors are also more likely to export. They also tend to invest more in internal and external R&D than those sectors with less innovation activity.
• From SE’s perspective, the survey results suggest that the challenge is not only to have companies innovate, but for them to innovate for growth. There may be a need to focus on maximising the benefits of innovation rather than solely increasing the absolute number of innovative businesses.