Innovation in Scotland : analysis of the community innovation survey 2009

Turnbull, Jennifer and Richmond, Kenny (2011) Innovation in Scotland : analysis of the community innovation survey 2009. Fraser of Allander Economic Commentary, 35 (2). pp. 62-70. ISSN 2046-5378

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Strengthening levels of innovation is one of the cornerstones of the Scottish Government‟s Economic Strategy. Innovation is a key catalyst for productivity growth as new ideas drive enterprise, create new products and markets and improve efficiency, delivering benefits to firms, customers and society. It is a crucial factor in determining competitiveness and national progress. Until recently, the most common and well known measure of innovation has been the ratio of national expenditure on R&D to GDP. Data shows that there has been a significant gap in business research and development (R&D) expenditure between Scotland and the UK, EU and OECD averages in recent years. Scottish Business Enterprise R&D (BERD) expenditure was 0.56% of Scottish GDP in 2009, lower than the rate for the UK as a whole (1.11%) and the EU (1.17%). Compared to other UK Government regions, Scotland ranked in 10th place out of the 12 regions. However, while R&D is useful for measuring technology-based activities, it is increasingly recognised that this is only one element of the broader concept of innovation and is frequently more relevant for manufacturing than for services. Evidence shows that firms introduce new products and services onto the market without necessarily performing R&D. A lot of innovation activity is based on (or embodied in) advanced machinery and computer systems purchased to implement new or improved processes and deliver new products and services. Innovation can also be purchased through rights to use patents, licences, trademarks and software. Innovation can also encompass training and new design and marketing processes. Evidence also shows that many firms adopt multiple, complementary innovation strategies, with the most innovative firms introducing both product and process innovations as well as marketing or organisational innovations. Therefore, productivity growth can be achieved through advances in technology combined with new approaches to creating and delivering of goods and services. There is now a solid body of evidence describing the relationship between research, innovation and economic development. The evidence suggests that investment in „intangible assets‟ that give rise to innovation (R&D, software, human capital and new organisational structures) now accounts for up to 12% of GDP in some countries and contributes as much to labour productivity growth as investment in tangible assets such as machinery and equipment. According to OECD estimates, investment in intangible assets accounted for around a quarter of labour productivity growth in the UK and other countries between 1995 and 2006. The Community Innovation Survey (CIS) allows an assessment of business innovation performance, wider than just R&D expenditure, across European Union countries. CIS collects a range of information from businesses on the types of innovation they are involved in, motivation for innovation, spending on a range of innovation activities beyond R&D, collaboration and linkages between businesses or with public research organisations, as well as data on sales from product innovations. In light of the growing recognition that innovation encompasses a wider range of activities, and that broader metrics are required to reflect this, the Innovation Survey provides a key data set to measure innovation within businesses.