Special report: Competing on knowledge

Traditionally, the UK has been regarded as good at innovation – with many inventions and scientific breakthroughs.

So, can this nation rest easy? No. Based on extensive research by the Advanced Institute of Management Research(AIM), it would appear that the agenda for keeping Britain competitive is a demanding one. Six AIM authors report on what you need to know. And do.

Is the UK an innovative country? Sad to say (and for many years), the UK economy has underperformed in terms of innovation. Research shows that Denmark, Finland, France, Germany, Japan, Singapore, South Korea, Sweden, Switzerland and the US all spend more than the UK on Research and Development as a percentage of GDP. The Competitiveness Index, produced by the World Economic Forum, ranks the UK sixth on a more general measure of innovativeness.

The Advanced Institute of Management Research (AIM: www.aimresearch.org) came into existence in 2002 to sustain, among other goals, a rigorous watch on UK’s innovation performance. This led to research projects looking at innovation from a number of different perspectives and at different levels of activity. In particular, AIM researchers tried to understand UK’s innovation performance within the context of a changing business world. From all its work, AIM has pinpointed four key ways that Britain could overtake its global competitors and achieve higher ranking. Quickly, Britain must become far better than it is at:

Opening up innovation The country has to boost collaboration across organizations and national borders. Britain already has one of the highest levels of international flows of investment; but, in other areas, such as collaboration between universities and the private sector – or with India and China, the UK has further to go.

Mastering higher-order innovation Britain needs a better understanding of the different forms of innovation (especially higher-order innovations, such as management innovations). Business leaders need fresh ways of looking at innovation in order to move their companies up the value chain. In particular, UK firms need to adopt smarter innovation practices, leading to novel business models and better ways of working.

Developing innovation networks To capitalize on its strong science base, the UK should develop innovation networks around its leading research centres, which would thus become innovation hubs. These innovation networks should also reach beyond the UK. In this way, the UK could position itself at the centre of a global innovation web. UK firms already invest heavily in R&D in other countries, especially the US. Rather than worrying about this practice, policymakers should recognize the important role it plays in technology transfer and knowledge spillovers into the UK.

Making the most of international firms in the UK Foreign multinationals own large parts of the UK economy (40 per cent of private sector companies), and the trend toward foreign ownership is continuing. Concerns have been raised about the “hollowing out” of the UK economy, especially the ability of these foreign- controlled businesses to be innovative and entrepreneurial. AIM research suggests this concern is unfounded. There is evidence that foreign-owned companies are at least as innovative as locally owned companies. There is also evidence that UK firms can use the local presence of foreign firms to learn from their superior technology.

Competing on knowledge

There is a thread that links the four measures advocated above. AIM research suggests that one of the main drivers of differences in productivity is tied to knowledge. Learning is a competitive weapon. That is, both in terms of individual skills and competencies and in terms of the knowledge-based capabilities of firms, the UK needs to shift away from competing via lower costs to competing via adding value. Put even more simply, Britain and its businesses need to expand their knowledge base.

The challenge now facing the UK is not simply to create more knowledge but to capture it in ways that have a positive economic and social impact. Primarily, this means converting our knowledge base into economic value through commercial innovation. It also means recognizing the changing nature of the global knowledge economy.

Attention is shifting from knowledge creation to knowledge flows, with the implication that trading knowledge may become as important in the 21st century as trading physical goods was in previous centuries. This requires the UK’s innovation infrastructure to become more effective at identifying and capturing useful know- how. In more ways than most people can imagine, the fate of the UK hinges on its ability to learn how to compete on the basis of knowledge. That’s why, for each of the four major AIM recommendations, leaders need to understand the actions that people in the UK can take, now, to accelerate the nation’s speed on the path to becoming boldly innovative.

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