Measuring innovation

The measurement of innovation is a difficult and challenging task, but having reliable metrics of innovation is important for research and innovation policy. There are two principal reasons why policy makers need this: first to provide an evidence base for the targeting of public sector interventions to stimulate innovation; and, second to assess the impact of those interventions.

In the UK the Government, in its 2008 Innovation Nation whitepaper, challenged the National Endowment for Science, Technology and the Arts (NESTA) to produce an innovation index to address this need. A pilot version of the index was published (together with three supporting studies) at the end of November 2009. These reports represent interim outputs in the 2-year project to produce the index, and comments are invited on the pilot index which will be refined in the next year.

NESTA are to be congratulated on the progress they have made with the index in a comparatively short space of time. The index looks at three aspects of the ‘innovation ecosystem’:

  • Component 1: A measure of how much the UK invests in innovation and the economic impact of this
  • Component 2: A measure of innovation at firm level
  • Component 3: An assessment of the wider conditions for innovation in the UK

This seems like comprehensive coverage, and, as you would expect from NESTA, covers innovation across the economy, not just those sectors where ‘traditional’ innovation happens. But this focus away from traditional sectors has led to an underplaying of the importance of research, especially public-sector funded research.

Research features in Component 1, and it is concluded that R&D only represents only 11% of the national investment in innovation. On NESTA’s overall measure of innovation investment the UK fares better in international comparisons that those based on R&D investment alone, and, according to NESTA’s analysis, investment in R&D accounts for a very small proportion of growth (see Figure 7 in the summary report although it is acknowledged that this may be an underestimate). The real problem here is that the R&D investment figures used are only those made by the private sector itself (the so-called BERD figure), where I think the public investment in R&D (some £10 million per annum) should also be included. There is evidence that this investment complements rather than replaces private R&D investment and much of the private R&D investment will build upon (and only happen because of) public sector spend. This relates to knowledge generated, but perhaps even more so to expertise. It is often through expertise built on long periods of public funded research that business funded R&D can happen at all.

Which brings me to my second point. Public sector R&D spend does feature in Component 3, where it is one of the aspects of the wider environment that favours innovation. However, as presented in the index public research spend appears as one of the least important with only 46% of firms reporting this factor as fairly or very important (Figure 12 of the summary report). This figure may be an underestimate, as it is based on a survey of only specific sectors of UK business (this supplementary report has the details). But even if this figure is correct it still misses something. The most important ‘wider condition’ reported in Component 3 is ‘Availability of talented people’, and many of those ‘talented people’ are only available because of a vibrant, healthy research base which depends strongly on public investment. Without that investment many of these people would either leave the UK (or not be attracted there in the first place), or would opt for other career paths where their impact on innovation would be lower.

So, innovation really is difficult to measure, but it is vitally important that the measures used reflect the complexities of the process of innovation. Only then can we make the best policy interventions for stimulating innovation.