Growing the Value of University-Business Interaction in Wales: Main Report by NCUB

Growing the Value of University-Business Interactions in Wales MAIN REPORT AUGUST 2017

By Professor Kevin Morgan, Dr Adrian Healy, Professor Robert Huggins and Mr Meirion Thomas

Foreword The National Centre for Universities and Business addresses issues in the UK’s interest, in partnership with policy makers and government. The National Centre’s Growing Value: Wales Task Force aims to investigate the interaction between universities and industry in Wales and to make recommendations for improvements. Chaired by Dr Drew Nelson, CEO of IQE and Professor Colin Riordan, Vice-Chancellor of Cardiff University, the Task Force brings together key individuals from the private and higher education sectors to focus on practical ways of harnessing the talent being developed in our universities and our strength in ground-breaking research and development (R&D) for the benefit of the nation’s economy. The National Centre’s previous Task Forces have had great traction and governmental influence, and are known for their practical actions and recommendations. This Task Force builds on the work of the UK-wide Enhancing Value Task Force, that fed into the science policy and spending review of 2012 and Growing Value: Scotland and its legacy programme Growing Potential: Scotland’s Innovation Step-Change, exploring how universities, business and government partner to enable a step-change in business R&D and innovation. This report is the first in a series on growing the most value from the Welsh innovation system and in particular from its university research. It explores the rapidly changing world of university-business interaction in Wales and identifies the opportunities and threats to collaboration and highlights clusters of excellence, or ‘hot spots’, in the Welsh innovation landscape with regard to university-business interaction. The approach consisted of an extensive document review followed by qualitative research with stakeholders from large and small business and all Welsh universities. The Research Team consisted of: Professor Kevin Morgan; Dr Adrian Healy; Professor Robert Huggins; Mr Meirion Thomas. The project is managed by Elin Lloyd Jones. We are grateful to Higher Education Funding Council for Wales, for funding this research.

Summary of the actions required from this report

1. Business and universities need to gain a deeper understanding of each other to forge bigger and better partnerships. 2. Building a better strategic approach to collaboration between universities and business is essential. 3. A strong, visible and sustained championing of university-business collaborations by senior leadership in both universities and businesses is crucial. 4. Wales needs to build process and service innovation into its overall strategising on innovation, including social innovation and public service innovation. 5. Universities must take into account the value chain businesses to enhance the impact of collaboration. 6. Investment in university-business collaboration in Wales should be reinstated to allow Welsh universities and businesses to operate on a par with other UK nations and regions. 7. A flexible and responsive tool using a modern digital platform and networking technology is needed to link together all Welsh universities and better inform businesses of expertise and collaboration opportunities. One practical way of doing this is for both parties to work through the bethespark.com digital platform which aims to connect all the key stakeholder groups in the knowledge economy.

Contents

Introduction 06

01. Growing Value through university-business interactions

02. Welsh business and research & innovation

03. Welsh universities and research & innovation

04. Hot spots for university-business interactions in Wales

05. Challenges to better university-business interactions in Wales

06. Opportunities to grow value through university-business interactions

07. Conclusions

08. An action plan to grow value

Table of Figures

Figure 1.

Percentage of UK Regional GDP spent on R&D

Figure 2.

Welsh firms undertaking innovation

Figure 3.

Levels and type of innovation by Welsh firms

Figure 4.

Sources of innovation rated as ‘high’ amongst Welsh firms

Figure 5.

Cooperation by type of partner

Figure 6.

Anchor companies in Wales

Figure 7.

University-business linkages in Wales

Figure 8.

University-business linkages in other UK regions

Figure 9.

Research expenditure in Wales

Figure 10.

Knowledge Exchange (KE) income in UK nations 2014-15 and I&E budgets

Figure 11.

Innovate UK project participations (2004-2017)

Figure 12.

Collaborative research income 2015/16

Figure 13.

Contract income

Figure 14.

Consultancy income

Figure 15.

Income from contract research and consultancy contracts for Welsh Higher Education Institutions (HEIs)

Figure 16.

International collaborations by Welsh organisations in Horizon 2020

Figure 17.

Participation by Welsh HEIs in Horizon 2020 to date

Figure 18.

Cardiff Capital Region identified sector strengths

Figure 19.

Swansea Bay City Region identified sector strengths

Figure 20.

North Wales identified sector strengths

Figure 21.

Sector priorities identified across strategy documents

Figure 22.

Current ‘hot spots’ of University Business Collaboration (UBC) as identified by HEIs

Figure 23.

Emerging ‘hot spots’ of UBC as identified by HEIs

Figure 24.

Alignment of collaboration ‘hot spots’ with strategy priorities

Figure 25.

Smart specialisation priorities for Wales

Introduction Commissioned by the Growing Value Wales Task Force1, this report explores the rapidly changing world of interaction in Wales. It identifies the opportunities and threats to collaboration and highlights clusters of excellence, or ‘hot spots’, in the Welsh innovation landscape with regard to interaction. The Task Force aims to explore three themes:

1. Mapping the ecosystem

2. Refreshing the talent pool

3. Simplification tools

This report provides the input for the first of these themes – “Mapping the ecosystem” – with the following objectives established for the research work: ••

To identify areas of strength and/or weakness and centres of excellence in the Welsh innovation landscape;

••

To identify emerging opportunities and threats;

••

To produce a ‘heat map’ of the innovation landscape in Wales.

The output from this work was envisaged as a short report to inform the development of the subsequent task force work-streams. More specifically, the Research team agreed with the GVW Project Board that the focus of the research should be on interaction and barriers/enablers to such interactions; to identify areas of strength/weakness and areas of emerging opportunities and threats relating to interaction and to highlight, where possible, clusters or centres of excellence in the Welsh innovation landscape with regard to interaction. The research approach adopted here consisted of an extensive literature and policy review followed by a programme of qualitative interviews with a wide range of stakeholders on the supply-side (universities) and the demand-side of interactions (large and small business). Finally, case studies or ’vignettes’ that illustrate aspects of the research, both challenges and opportunities, have been used to shed further light on university-business collaboration. The Research Team consisted of: •• Professor Kevin Morgan •• Dr Adrian Healy •• Professor Robert Huggins •• Mr Meirion Thomas

1 Growing Value Wales builds on the work of the National Centre for Universities and Business’s (NCUB) UK-wide Enhancing Value Task Force and the Growing Value Scotland Task Force.

Growing Value through university-business interactions

Literature review Research, development and innovation are widely recognised as vitally important for the growth and prosperity of the economy – globally, nationally and regionally. The globally available evidence shows that successful economies are typically characterised by their active knowledge economies and innovation systems, comprising academic, public sector and business R&D and innovation activities supported by flexible public policy mechanisms. A 2014 benchmarking analysis of international science and innovation system conducted on behalf of the UK Government notes that “Science and innovation systems are complex and made up of a large number of complementary elements; their effectiveness is crucially determined by how well the elements interact within and respond to the demands of the broader economic and societal system”2. Crucially, innovation systems also rely on softer elements such as a culture of innovation based on interaction, and openness to international opportunities and change. An effective innovation ecosystem enables companies, universities, research organisations, investors and government agencies to interact effectively to maximise the economic impact of the commercialisation of research and innovation. Conventional technological innovation models are being challenged, loosening the adherence to scientific discovery as the primary source that feeds innovation. Businesses now focus to a great extent on demand-led innovation inspired by their need to gain a more detailed, and nuanced, understanding of user needs and consumer expectations. In this context, innovation models emerge that are based

on a strongly interactive ecosystem that values transformative innovation outputs alongside, but not subservient to, scientific knowledge. Policies and strategies that support economic growth stress the importance of building a knowledge economy with the smooth and effective exchange of technology and knowledge between the academic and business sectors at the heart of a successful innovation-led economy. NESTA has considered the specific role that universities play in helping to make the innovation capacity of places and systems function more effectively and concludes that universities play a key role in catalysing knowledge exchange with and between businesses because of their potential role as ‘anchors for innovative businesses’3. Furthermore, many international studies, for example by the OECD4, have shown that European regions that focus on building a collaborative approach between business, universities and government tend to be the most successful in improving their performance. In this vein, the European Commission5 describes a ‘connected region’ as one where there are synergies between the intellectual assets of the region’s universities and the needs of business in developing innovation capacity. Sir Andrew Witty, in his Review of Universities & Growth (2013)6, noted that “Universities generating cutting edge research... likened to the tip of an arrow... the arrowhead behind it representing the economic activity enabled by researchled innovation. Maximising the size of these arrowheads... is fundamental”.

2 Department of Business Innovation and Skills (2014) “Insights from international benchmarking of the UK science and innovation system” A report by Tera Allas, BIS Analysis Paper 03, January 2014, Available from: www.gov.uk/government/publications/science-and-innovation-system-international-benchmarking 3 Kitson, M; Howells, J; Braham, R; Westlake, Stian (2009) ‘The connected university: driving recovery and growth in the UK economy’. NESTA research report Available from: www.nesta.org.uk/publications/reports/assets/features/the_connected_university 4 OECD (2011) ‘Regions and innovation policy’, OECD Reviews of Regional Innovation. Executive summary available from: www.oecd.org/dataoecd/43/39/47743581.pdf 5 European Commission (2011) ‘Connecting universities to regional growth: a practical guide’, Smart Specialisation Platform, September. Available from: http://ec.europa.eu/regional_policy/sources/docgener/presenta/universities2011/universities2011_en.pdf 6 UK Government BIS (October 2013) ‘Encouraging a British Invention Revolution: Sir Andrew Witty’s Review of Universities and Growth’ Final Report and Recommendations.

08 Innovation is therefore now characterised as involving inter-organisational networks in the form of collaborative linkages with a range of external actors. Consequently, knowledge from providers such as universities is a key factor within modern innovation processes and the formulation of innovation systems. Universities are increasingly portrayed as core knowledge-producing entities that can play an enhanced role in driving innovation and development by providing knowledge for business and industry.

Policy context The European Commission’s key strategy document, Europe 20207, sets out a vision of Europe’s economy for the 21st century being driven by smart, sustainable and innovative businesses providing high levels of employment and strong productivity. The role of innovation and knowledge intensive activities in the commercial, academic and public sectors was strongly emphasised throughout the strategy as providing the fuel for growth and development at an EU, member state, regional, local and business unit level. The Europe 2020 Flagship Initiative, Innovation Union8, noted the need for the “EU and Member States … to continue to invest in education, R&D, innovation and ICTs.” Similarly, Europe’s performance against the Lisbon Agenda commitments was set out in the evaluation of the Lisbon Strategy9. This found that, while the main targets of the Lisbon Agenda such as the 3% of GDP spent on R&D were not achieved, the overall impact of the targets and the strategy had been positive for the EU economy and Member State activities in respect of innovation.

At the regional level, EU policy has remained consistently focused on achieving economic and social improvements through action taken and measured at the regional level. For example, the Fifth Report on Economic and Social Cohesion10 found that after actions taken to promote greater cohesion between regions, the disparities between EU regions have narrowed and the impact of consistent investments on innovation, skills and infrastructure, among others, has been instrumental in helping the better regions to continue to prosper and the weaker regions to make overall strides forward. However, the report also noted that there is a continuing need for policies operating in support of regional development and the main EU and national policies to be better coordinated. The Europe 2020 strategy has subsequently been accompanied by a range of priority statements. These highlight the important challenge of “encouraging more innovation from the research base through better cooperation between the

“Universities generating cutting edge research... likened to the tip of an arrow... the arrowhead behind it representing the economic activity enabled by research-led innovation. Maximising the size of these arrowheads... is fundamental.”

Sir Andrew Witty, in his Review of Universities & Growth (2013)

7 ‘Europe 2020: A European Strategy for Smart Sustainable and Inclusive Growth’, March 2010. 8 ‘Europe 2020: Flagship Initiative Innovation Union SEC(2010) 1161’, October 2010. 9 ‘Commission Staff Working Document: Lisbon Strategy’ evaluation document, February 2010. 10 ‘Investing in Europe’s future; Fifth report on Economic, Social and Territorial Cohesion’, November 2010.

09 worlds of science and business”, as well as the need to simplify the innovation system in Europe. While there is a long standing emphasis in EU policy on the important role and contribution of R&D and innovation to achieving economic development and growth, at the heart of the latest policy developments is the requirement for regions to identify niche areas on which a strategy for growth and innovation can be built. This approach is termed ‘Smart Specialisation’. Smart Specialisation11 is based on the premise that regions should identify the technology areas that have the potential to be distinctive specialisms for future economic growth. Smart Specialisation calls for a “process of building on the past, while breaking with the past”12. This, it is argued, will allow concentration of resources and action, and the maximisation of local spill-over benefits and knowledge transfer. Smart Specialisation therefore points to a need to build on existing strengths and competencies while also promoting specialisation that has a basis in the existing strengths and competencies of each region13. Enhancing the strength of the UK’s knowledge base has also been a key part of recent UK government innovation strategies with a strong focus on supporting and developing the capacity and capability of the UK’s knowledge base to conduct fundamental and applied research across a range of disciplines. In the UK Government’s Innovation and Research Strategy for Growth (2011)14, a set of principles for the further development of the UK’s research capabilities was set out. The aims of the strategy were to be achieved by “supporting research and innovation in business; providing incentives for companies to invest in high-value business activities; creating a more open and integrated innovation ecosystem; and removing barriers to innovation”. The Innovation and Research Strategy for Growth recognised that, to succeed in the global innovation economy, the UK must strengthen its ability to accelerate the commercialisation of emerging technologies, and to capture the value chains linked to these. However, the strategy recognised that, while competition is important in driving innovation, collaborations between researchers, innovators and businesses typically produce greater success and impact.

Contemporary conceptions of innovation are no longer focused on the role of individual agents – firms, R&D centres and universities etc., – as they are now considering how these agents collaborate for mutually beneficial ends. The current focus on ‘innovation ecosystems’ is an example of this new focus on collaborative activity, a process in which firms, universities and governments are the key players, so much so that knowledge exchange networks are the defining feature of all the world’s most successful regional innovation ecosystems. The innovation ecosystem is regarded as crucial to the success of innovation and growth with strong connections between the key players in the innovation ecosystem highlighted as instrumental if knowledge is to be created, disseminated and exploited in innovative, high-growth businesses. Allowing and enabling businesses to easily access the UK’s research facilities and knowledge base is seen as essential.

The UK Government has identified that most successful national innovation systems share common characteristics. For example, they: ••

Have the ability to generate long-term, large scale and risky investments to exploit new ideas.

••

Enable relationships to be built and sustained among people producing, sharing, applying and developing various kinds of knowledge through their networks.

••

Build networks that allow research and innovation players to engage in worldclass international collaborations.

In these successful innovation systems, governments, delivery bodies and agencies take a leadership role, developing key technological capabilities through R&D and supporting collaborations between innovation ‘actors’ and institutional frameworks including across education, regulation and infrastructure.

11 Foray et al. (2009) ‘Smart Specialisation – The Concept’. http://ec.europa.eu/invest-in-research/pdf/download_en/kfg_policy_brief_no9.pdf 12 Healy, A. (2012) ‘Smart Specialisation: building on the past, whilst breaking with the past’, Report of the Smart Specialisation Workshop, Cardiff, June, 2012. http://s3platform.jrc.ec.europa.eu/documents/10157/29014/Summary_document_Adrian_Healy_Cardiff_Uni.pdf 13 Morgan, K. (2017) Nurturing Novelty: Regional innovation policy in the age of smart specialisation, Environment and Planning C, 35(4), pp.569-583. 14 Department for Business Innovation and Skills (2011) ‘Innovation and Research Strategy for Growth’.

10 The Welsh Government’s innovation strategy - Innovation Wales15 - identified a number of innovation-related challenges. Improving collaboration was identified as the number one priority because; “We must redouble our combined efforts to ensure that knowledge in universities and colleges is used to underpin innovation in business and so increases economic activity. Government, academia and business will work to identify mechanisms to make this happen and overcome barriers to successful exploitation” (Welsh Government, 2014:20).

A growing body of work examining university knowledge exchange demonstrates that:

••

Many institutions are developing policy initiatives designed to increase such activity; but less is known about the nature and pattern of the networks and interactions emerging from such knowledge-transfer practices.

••

The characteristics of universities involved in collaborative partnerships have an important bearing on the development of linkages.

••

External networking capability may also rely on the prestige and reputation of the institution. More established universities tend to be more research focused and may have a greater attraction for external organisations.

••

Research prowess can act as a significant draw for firms pursuing collaborative linkages.

These types of linkage have been shown to have a positive impact on the firms involved, with the evidence highlighting several benefits to the firms involved - such as increasing sales, research productivity, and the level of patenting - through facilitating access to a broader range of external resources, promoting learning within the firm, and broadening the scope of their activities. Furthermore, universities cannot simply be seen as suppliers of research results or graduate employees but as partners with the capability to collaborate with businesses on strategic research initiatives, engaging in cluster building with large and small companies and helping to mobilise entrepreneurial and innovation cultures in their local areas and within their research and graduate communities.

15 Welsh Government (2014) ‘Innovation Wales’.

Welsh business and research & innovation

Over the past 20 years, whilst Wales has been able to develop a rich landscape of innovation activities, programmes and supporting organisations including its universities and anchor companies, the position of innovation and technology in economic policy has fluctuated from being at the heart of policy to being, at times, a fringe activity. Key economic and innovation indicators show that Wales suffers from persistent structural deficiencies and poor economic performance. Consequently, Wales continues to lag behind its competitors in the UK and Europe and while, at an EU level, Wales is classed as a â&#x20AC;&#x2DC;strong innovatorâ&#x20AC;&#x2122;, innovation activity in Wales is not achieving sufficient added value. In 2016, the chair of the House of Commonsâ&#x20AC;&#x2122; science and technology select committee called on the government to set a target to invest 3% of GDP on R&D. This is regarded as a benchmark for a progressive innovation-led economy although only the East of England region currently meets that target. While there is evidence that Welsh firms are on average at least as innovation active as their counterparts in other parts of the UK, Wales is in a relatively weak position with regard to the traditional metrics of research and innovation performance, such as the % of GDP expended on R&D investments by firms. While the UK average is currently 1.68%, in Wales it is just 1.15%. The situation is a little stronger in East Wales, where spend is 1.55%, but much weaker in West Wales and the Valleys, where the figure is just 0.86% of GDP.

Figure 1: % of UK Regional GDP spent on R&D

East of England South East West Midlands East Midlands

UK Regions

South West United Kingdom Scotland North West Northern Ireland Wales Yorkshire and Humber London North East 0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

% Spend on R&D

Source: Eurostat

However, a rising number of firms in Wales are undertaking R&D, although proportionately fewer Welsh firms invest in R&D than their UK counterparts.

12 Welsh firms undertaking innovation

Figure 2: Welsh firms undertaking innovation

1300

Numbers of Firms Reporting

1250 1200 1150 1100 1050 1000 950 2014

2013

2015

Source: UK Innovation Survey

Levels of innovation amongst Welsh firms are on a par with UK averages as a whole.

Figure 3: Levels and type of innovation by Welsh firms

Innovation Active Broader Innovator

Types of Innovation Reported

Wider Innovator Activities Product Innovator Process Innovator Abandoned Activities On-going Activities Both Product AND Process Innovator Either Product OR Process Innovator 0.0 UK

Wales

10.0

20.0

30.0

40.0

50.0

60.0

% of Innovation Active Firms

Source: UK Innovation Survey

The structure of the Welsh economy is clearly reflected in the sources of innovation for Welsh firms with most reporting that their highest sources of ideas coming from within the firm, from suppliers or from clients and customers, i.e. their supply or value chains. In addition, a significant proportion also source innovation ideas from observation of their competitors.

Figure 4: Sources of innovation rated as ‘high’ amongst Welsh firms

Scientiﬁc Journals and Trade/ Technical Publications Technical, Industry or Service Standards Professional and Industry Associations Conferences, Trade Fairs, Exhibitions Government or Public Research Institutes Universities or other Higher Education Institutes Consultants, Commercial Labs or Private R&D Institutes Competitors or other Businesses in your Industry Clients or Customers from Public Sector Clients or Customers from Private Sector Suppliers of Equipment, Materials, Services or Software Within your Business or Enterprise Group 0

% of ﬁrms responding

Source: UK Innovation Survey

This is similarly reflected in the responses of those Welsh firms reporting that they cooperate with external partners. Of these, they mainly work with suppliers or private sector customers with only a quarter reporting that they work with Universities.

Figure 5: Cooperation by type of partner

Government or Public Research Institutes Universities or other Higher Education Institutes Consultants, Commercial Labs or Private R&D Institutes Competitors or other Businesses in your Industry Clients or Customers from Public Sector Clients or Customers from Private Sector Suppliers of Equipment, Materials, Services or Software Other businesses within enterprise group 0

% of ﬁrms responding

Source: UK Innovation Survey

14 The Welsh economy is particularly influenced by the strength and integration of its SMEs and Multi-National Company (MNC) base into global value (supply chains). MNCs are able to use advanced production methods, leverage a network of international suppliers, customers and contractors to enhance their creation of value. By contrast, while it has long been accepted that the development of global value chains offers new opportunities to SMEs (typically by enabling them to expand their business opportunities and acquiring new skills and new technologies) this has often proved more of an aspiration than a reality for many Welsh SMEs. Businesses in Wales sit in various positions in their value chains and in terms of tier status (1-5). Within global value chains, SMEs who are lower down the supply tiers may be given opportunities but may not have the critical mass required to support the required R&D, training and investment required to fully capitalise on the value chain opportunity. The evidence provided above of Welsh SMEs identifying their suppliers and customers as the most

important collaborators for innovation and for sources of ideas confirms this analysis. For SMEs to move up the value chain a continuous process of change, innovation and productivity growth is required. Stimulating technology transfers along and across value chains is frequently cited as the most important channel through which Foreign Direct Investment (FDI) can help produce ‘positive externalities’ for the regions and countries in which they operate. In Wales numerous anchor companies are afforded support from Welsh Government. These form a key collaborator audience for SMEs in their value chains and also provide support as research and technology transfer collaborators for HEIs. The location and distribution of the anchor companies is of importance in this respect since the development of ‘clusters’, ‘industrial districts’ and ‘ hot spots’ in a regional and national economy will be strongly influenced by relative location, travel distance and the location of reservoirs of skilled and educated staff.

Research on university-industry ties has produced some evidence suggesting that the co-location of research intensive firms and universities in the same region facilitates interactions leading to innovative collaboration. Given the current evidence base, it can be suggested that:

••

Innovative regional economies are typically considered to be populated by research-intensive universities engaged in world-leading research.

••

Less innovative regions tend to be organisationally and institutionally ‘thin’, with a lack of innovation-driven public or private sector entities.

••

Universities located in core regions with greater pools of large R&D-intensive firms may have better opportunities to forge links with these players.

••

Universities also engage with many other types of firms and entrepreneurial firms are often able to enjoy a lower cost searching for partners when located near universities, with proximity also allowing firms to access crucial tacit knowledge from universities.

••

However, rising levels of national and transnational academic–industry partnerships demonstrate that neither firms nor universities consider knowledge flows to be necessarily spatially constrained.

••

The increased reliance on wider spatial knowledge pipelines is reflected in the growing number of firms choosing to work with the best universities regardless of location in order to take advantage of high talent pools, favourable intellectual property rules and government incentives for joint industry–university research.

When university partners are spatially proximate, firms are able to observe their actions more closely, assessing their effectiveness. Consequently, co-location promotes the formation of university-business links through minimising search costs. In addition, localised linkages encourage higher levels of interaction among agents increasing the intensity of collaborative links, and higher levels of interaction promote both collective learning and communication externalities. Therefore, spatial proximity allows the transfer of tacit knowledge, which is often contextual in nature, permitting the richness of information to be passed from actor to actor.

Figure 6: Distribution of Anchor FIrms in Wales

Anchor Companies in Wales

Number of Anchor Companies 1 2 3 4 5 10

The spatial location of anchor companies in Wales is therefore of importance to their potential impact on research and innovation performance and business collaboration within the wider innovation system. The spatial distribution of the anchor companies shown in Figure 6 is hardly surprising given Walesâ&#x20AC;&#x2122; industrial history and population distributions but it does, nonetheless, provide important evidence when the role and potential of anchor companies is taken into account in a discussion of growing value through interactions within the innovation ecosystem. Mapping the opportunities for clustering and â&#x20AC;&#x2DC;hot spotâ&#x20AC;&#x2122; development may take into account the location and spatial distribution of economic activities and the intensity and complexity of those activities. For example, NESTA recently undertook an analysis of the economic complexity of local authority economies in the UK and concluded that areas with major economic diversity, more complex economies tend to have higher levels of GDP per capita and lower levels of inequality.

Source: Authors GiS based on Welsh Government data.

In Wales complex economies are strongly concentrated in a small number of locations, notably Cardiff and Swansea, with much lower complexity evident across much of Mid and West Wales where rural economies and activities dominate.

A different approach is to map the linkages and networks that exist around universities making a distinction between linkages with firms and other organisations within the same region and those outside the region. In addition, linkages between Universities within the same region are also mapped. This has been done for Wales as shown in the figure below. Figure 7: University-business linkages in Wales

Firms and other organisations in the region Firms and other organisations outside the region Universities in the region

Source: R Huggins, Cardiff University

16 Comparisons with the mapping of linkages in other relevant UK regions can help the analysis here. Figure 8: University-business linkages in other UK regions

East of England

Scotland

Firms and other organisations in the region

East Midlands

South East England

North East England

Firms and other organisations outside the region

Universities in the region

Source: R Huggins, Cardiff University

Figures 7 and 8 show network maps for Wales and a selection of other UK nations and regions. The maps plot the links between universities in each region with external actors, principally businesses, with regard to knowledge transfer activities, namely: i. Collaborative research – academic research undertaken in partnership with other organisations; ii. Contract research – a transaction involving the provision of university research to an external partner; iii. Consultancy – application of existing knowledge in the form of advice or work to an outside party. It can be seen that there is a general trend for the networks to become thinner in the less innovative regions such as Wales (and North East England). The clustering around particular leading universities is quite pronounced, and in the case of leading regions there is a cadre of universities that act not only as strong networkers but also as ‘regionally open innovators’, given that they possess significant links with organisations not only in their own region, but also other regions. One of the most interesting features of these network diagrams is the extent to which there are bridging connections across clusters and regions, with the level of connectivity across clusters being an indication of the extent to which knowledge is diffused within and between regions. This bridging appears to be stronger in leading regions, where cross-cluster connections are more developed.

Welsh universities and research & innovation

Despite the overall poor performance of Wales in respect of the overall % of GDP invested in R&D, levels of research expenditure in Wales are increasing, both by universities and by firms. Figure 9: Research expenditure in Wales

800

Business enterprise research and development

700

Government and Research Councils research and development

600 500

Higher Education bodies research and development

400 300 200 100 0 2001

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

2014

Source: Office of National Statistics (ONS)

However, an assessment of collaboration in the UK needs to bear in mind the key finding of the Lambert Review, which concluded by saying that the primary problem of knowledge exchange in the UK was the business community’s low demand for knowledge from the higher education sector. This may be especially pertinent to Wales, where business R&D spending is the lowest of the nations and regions of the UK. The fact that the R&D facilities of MNCs are located elsewhere and the fact that locally-based firms have low levels of R&D sets limits on the extent to which the HE sector in Wales can attract significant investment as measured by the HE-BCI indicators. For the first time in recent years the total income figure has decreased as we can see from the figure below, which shows Wales as the only nation in the UK to register negative income growth from knowledge exchange activity.

Figure 10: Knowledge Exchange (KE) income in UK nations 2014-15 and I&E budgets 2014/15 I&E Budget

2013/14 KE Income

2014/15 KE Income

£ million

England

150

3200

3400

Scotland

17.1

412

453

10%

Northern Ireland

3.96

121

30%

201

193

-4%

Wales

Source: Higher Education – Business and Community Interaction (HEBCI) data supplied by HEFCW

% Change In KE Income

18 Although it is difficult to attribute the decline in knowledge exchange income to any single cause, it seems likely that it is not unrelated to the changes in core funding (the abolition of HEFCW’s Innovation and Engagement (I&E) Fund) and the termination of projects under the previous EU Structural Funds. Although the current EU Structural Funds programme (2014-2020) helps universities to renew their knowledge exchange activity, the Welsh HE sector has been uniquely disadvantaged by the fact that Wales is the only UK nation to have abolished its I&E budget. From 2004-05 to 2013-14 HEFCW’s I&E Fund provided a dedicated source of core formula-driven funding that enabled a professional approach to I&E activity across Wales. The level of funding in

2012-13, its final full year, was £8.2 million, which supported core infrastructure in every Higher Education Institution (HEI) in Wales along with 7 projects that were run collaboratively across Wales. However, from 2013-14 HEFCW was required by the Welsh Government to begin a phased withdrawal of the I&E Fund to fund full-time undergraduate fee grants for Welsh domiciled students. Consequently, there was a 50% reduction in the I&E budget in 2013-14 and zero formula funding from 2014-15 onwards. As HEFCW has said, the withdrawal of Innovation and Engagement Funding has “put Wales at a disadvantage compared with England, Scotland and Northern Ireland where HE funding bodies continue to invest in knowledge exchange activity”.

The loss of Innovation and Engagement funding has three debilitating implications for Wales:

••

It makes it much more difficult for HEIs in Wales to recruit and retain highly specialised business engagement and commercialisation teams;

••

It also makes it much more difficult for Welsh HEIs to build sustainable partnerships with businesses, civil society organisations and other HEIs because the I&E budget provided the matchfunding used to lever in other sources of funding, including EU Structural Funds, Knowledge Transfer Partnerships (KTP), Innovate UK and IP revenues;

••

The zero budget for I&E sends a very strong signal to businesses and to academics and researchers that interaction is not valued in Wales and a poor relation to teaching and research.

HEFCW has argued that, compared to the £150 million per annum available to eligible universities in England, “this divergence puts Wales at a competitive disadvantage in terms of the delivery of world-class activity in innovation and engagement due to: the inability to provide a supporting infrastructure and the loss of expert staff; the inability to match fund external projects; and the unsustainability of collaborative activity”. In the absence of I&E funding the capacity of HEIs to support university-business interaction will become increasingly uneven. Although the larger HEIs have the capacity to absorb the loss in their overall budgets, smaller HEIs will not be in a position to do so, with the result that the poorest areas will have the least capacity to engage in the knowledge exchange activities that are critical to social and economic regeneration. Apart from triggering new equity issues between large and small HEIs, the loss of the I&E fund has another consequence that is less perceptible but no less important and this stems from the subtle interplay between research and I&E activity. According to HEFCW it will be difficult to replicate Wales’ strong performance in the Research Excellence Framework 2014 (REF) in the future without the instruments provided through I&E funding. English HEIs are already using their Higher Education Innovation Funding (HEIF) allocations to support the development of impact case studies in anticipation of the next REF. HEIs in Wales were already below the UK benchmark in relation to the Environment element of the REF exercise and the loss of I&E funding will further compound this weakness.

19 The Diamond Review16 acknowledged that Wales was at a disadvantage with England, where a third of all income from university knowledge transfer activity is attributable to the impact of HEIF and where each pound of HEIF generates around £7.90 in knowledge transfer income. Diamond argued that Wales needed an enhanced partnership between universities, business and government to maximise the social and economic benefits that can be derived from HEIs. Therefore it recommended that Welsh Government (WG), through HEFCW, should provide a dual support system of knowledge exchange funding, consisting of: •• Two hubs (to enable smaller HEIs to participate) receiving core funding of £5 million in aggregate per annum to enable agile and flexible engagement between HEIs and industry, and •• A flexible response mode scheme to promote university-business collaboration projects that will have an economic impact, costing £20 million per annum (Diamond, 2016). All in all the Welsh landscape for university-business collaborations has changed dramatically in recent years and the net effect of the changes is to put Wales at a serious disadvantage vis-a-vis the other UK nations. The abolition of I&E support also exposed a significant disconnect between education policy and economic policy within Welsh Government. While the former was abolishing the I&E budget to finance under-graduate fee grants, the latter was extolling the need for better and closer collaboration as the

centrepiece of its new Smart Specialisation strategy for innovation and growth. Wales’ disappointing performance in respect of research and innovation is further illustrated by the small number of leading Welsh participants in the UK’s leading innovation programmes, financed by Innovate UK. Nine organisations, mainly Universities, account for more than one-third of Welsh activity. Whilst local authorities and health boards in Wales do get involved in these programmes, they do so less frequently than in other UK nations. When taking into consideration the leading 15 participants - including a number of small and micro enterprises - the number of firms increases. Of the 883 projects (2004-17) that included Welsh participants, most are in the field of collaborative research, followed by feasibility studies, Innovation Vouchers and Knowledge Transfer Partnerships. Collaborative research income earned by Welsh Universities increased by 19.5% over the period 2012 - 2015 in cash terms and Wales’ strong performance in this measure is likely to have been associated with the availability of EU Structural Funds especially the Welsh Government’s A4B (Academics for Business) programme. In 2014-15 the Welsh share of UK collaborative research income remained at 6.7% (above the 5% population threshold that HEFCW uses as a benchmark for performance) but amongst the lowest in the UK.

Figure 11: Innovate UK project participations (2004-2017)

Collaborative R&D Feasability Studies Vouchers Knowledge Transfer Partership BIS-Funded Programmes EU-Funded GRD Proof of Concept GRD Proof of Market Fast Track Small Business Reseacrh Initiative GRD Development of Prototype Launchpad Large Project Procurement Special Interest Group Centres Study

Source: Latest HE-BCI report from HEFCW: 2014-15

16 Diamond (2016) ‘The Review of Higher Education Funding and Student Finance Arrangements in Wales’ Welsh Government.

Figure 12: Collaborative research income 2015/16

North East Northern Ireland South West Wales

UK Regions

West Midlands East Midlands East Yorkshire and Humber South East North West Scotland London 0

50,000

100,000

150,000

200,000

250,000

300,000

2015/16 Collaborative Research Income £’000

Source: HEBCI

Levels of contract income were the lowest in the UK, with consultancy income lowest bar one. Whilst some of this can be explained by the smaller size of Wales, it highlights the predominance of research activities over contract and consultancy activities, which may have a more immediate impact on growing value.

Figure 13: Contract Income

Wales Northern Ireland North East East Midlands

UK Regions

East South West West Midlands North West Scotland Yorkshire & Humber South East London 0

100,000

200,000

2015/16 Contract Research Income £’000

Source: HEBCI

300,000

Figure 14: Consultancy Income

Northern Ireland Wales South West North East

UK Regions

East Midlands West Midlands Yorkshire and Humber North West South East East Scotland London 0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2015/16 Collaborative Research Income ÂŁâ&#x20AC;&#x2122;000

Source: HEBCI

Consultancy does however form an important aspect of the activities of Welsh universities, particularly when working with SMEs. Representing almost 30% of all consultancy income activities across the Welsh HEIs.

Figure 15: Income from contract research and consultancy contracts for Welsh HEIs

Contract Research SMEs

Contract Research non-SME Commercial Contract Research non-commercial

14%

Consultancy SMEs

27%

Consultancy non-SME commercial Consultancy non-commercial

18% 13%

23%

Source: HEBCI

22 Research income is strongly targeted by the Welsh HEIs for obvious reasons and there is evidence of growing success by a number of HEIs in key research programmes. For example, in the EU’s Horizon 2020 programmes of research to date, Welsh organisations have recorded above UK and EU average for participation in projects on Excellent Science, above UK average for participation in projects on Industrial Leadership but below UK and EU average for participation in research on Societal Challenges. In respect of international research collaborations supported under Horizon 2020, Welsh HEIs are able to boast of widespread pattern of collaborative partners covering 1000 collaborations suggesting an open approach to collaboration and a strongly international perspective as far as research and research partners are concerned.

Figure 16: International collaborations by Welsh organisations in Horizon 2020

ISL

(6)

(45)

SWE

(25)

FIN

(19)

NOR

(3)

EST

(3)

CAN

(22)

USA

(3)

LVA

(24)

IRL

(2)

DNK

(2)

(6)

LTU LTU

CYMRU/ WALES

(2)

POL

(27)

(191)

BEL

(51)

(1)

LUX LUX

DEU

CZE(14)

(14)

(118)

FRA

SVK

AUT

(54)

SVN SVN

(10)

HUN

ITA

AUS

(2)

ROU ROU

(6)

(7) (3)

(147)

(31)

(1)

(39)

CHE

PRT

BLR

(79)

NLD NLD

KOR (1) CHN

(9) HRV HRV(9)

(1)

ESP

(142)

SRB

BGR

(8)

(1)

MKD

TUR

(7)

GRC(42) (1)

TUN

1 - 39 40 - 79 80+

(2)

MLT

CYP(7)

(4)

ZAF

(South Africa)

Manylion yn gywir @ 30.09.16 Details correct @ 30.09.16 © Hawlfraint y Goron 2017 • Cartograﬀeg • Llywodraeth Cymru • ML/162/15.16 © Crown copyright 2017 • Cartographics • Welsh Government • ML/162/15.16

Source: Welsh European Funding Office (WEFO) 2017

(2)

KEN

(2)

TZA

(2)

ETH

ISR(13)

23 Performance in Horizon 2020 (and earlier framework programmes) by the Welsh HEIs must however take note of the dominant position of Cardiff University as shown below.

Figure 17: Participation by Welsh HEIs in Horizon 2020 to date

Cardiﬀ University Bangor University Aberystwyth University Swansea University Cardiﬀ Metropolitan University University of Wales Trinity Saint David University South Wales Wrexham Glyndwr University 0

2.5

7.5

12.5

17.5

22.5

EU Contributions (€m)

Source: Welsh Government 2017

Although HEIs in Wales play a major role in the Welsh research and innovation system, they cannot keep abreast of their peers in other nations and regions of the UK because the budget to fund collaboration in Wales – the I&E fund - has been cut to zero while it is increasing elsewhere in the UK. The Diamond Review has identified a solution to this uneven funding landscape and its knowledge exchange recommendation needs to be implemented as a matter of urgency if Welsh HEIs are not to be permanently disadvantaged.

Hot spots for universitybusiness interactions in Wales

Priorities contained within policies, strategies and action plans Across Wales, four broad areas have been identified as central to innovation activities. These connect closely to three areas of significant scientific strength. Innovation Wales

Science for Wales

Life science and health

Life sciences

Low carbon energy and environment

Energy and environment

Advanced engineering and materials

Advanced materials and manufacturing

ICT and the digital economy

Although some strengths are present across Wales, others are more concentrated. At a sub-national level, three principal areas have published strategy and vision documents that identify specialisms and themes that form an important part of the innovation landscape in these areas. These are the Cardiff Capital Region (with an agreed City Deal), Swansea Bay City Region (with a signed agreement for a City Deal) and North Wales. For example, across the Cardiff Capital Region, a range of documents identify a number of key strengths present in the area.

Figure 18: Cardiff Capital Region identified sector strengths Future Foundry (Cardiff Capital Region)

Science and Innovation Audit (South West England and South East Wales)

Life-sciences, med-tech, healthcare and clinical

Aerospace and advanced engineering

Digital, big data, cyber and semiconductors

New energy systems

Urban, civic, government and social innovation

Digital living

Next generation micro-electronics

Environmental and sustainability resilience

25 Swansea Bay City Region has recently identified four key themes as areas of strength. Figure 19: Swansea Bay City Region identified sector strengths The internet of economic acceleration (digital activities)

The internet of energy (energy technologies)

Internet of life science and well-being

Smart manufacturing

- Offshore and marine energy - Homes as power stations

- Factory of the future - Steel science

Across North Wales, three principal themes are identified as regional strengths. Figure 20: North Wales identified sector strengths Energy

Advanced Manufacturing

Digital

A number of convergences can be found across these various plans and strategies. These are shown in the figure below.17 Figure 21: Sector priorities identified across strategy documents Innovation Wales17 (pan-Wales)

Science Wales (pan-Wales)

Life sciences and health

Life sciences

Low carbon energy and environment

Energy and environment

Life-sciences, medtech, healthcare and clinical

Digital, big data, cyber and semiconductors

ICT and the digital economy Advanced engineering and materials

Cardiff Capital Region (Future Foundry)

Advanced materials and manufacturing

Swansea Bay City Region

North Wales Economic Ambition Board

Science and Innovation Audit (SW England and SE Wales)

Internet of life science and well-being The internet of energy

Energy

New energy systems

The internet of economic acceleration

Digital

Digital living

Smart manufacturing

Advanced manufacturing

Aerospace and advanced engineering

Urban, civic, government and social innovation Environmental and sustainability resilience Next generation micro-electronics

17 This is not directly equivalent to asking where the university sees itself with regard to its research or teaching capabilities. Clearly, the Research Excellence (REF) and Teaching Quality assessments would provide a more objective picture of these more specialised capabilities.

The view from the universities As part of this research project, interviews were conducted with all HEIs in Wales to ascertain their own view of their strengths (or ‘hot spots’) in the strategic sectors and technology disciplines most relevant to universitybusiness collaborations. It should be noted that this mapping has not been externally tested but is based on the universities’ own perception of where their interaction with business is particularly strong or becoming so18. (Additional research is necessary to allow a more nuanced and quantified assessment of hot spots to be made). The picture that emerges is as follows: Figure 22: Current ‘hot spots’ of UBC as identified by HEIs Current ‘hot spots’

Region

HEI

Compound semiconductors

SE Wales

Cardiff

Catalysis

SE Wales

Cardiff

Energy technologies

SE Wales

Cardiff

Creative sector

SE Wales

Cardiff /Cardiff Met/ USW

Life sciences/Drug discovery

SE Wales

Cardiff

Hydrogen technologies

SE Wales

USW

Automotive and power systems

SE Wales

USW

Aircraft maintenance

SE Wales

USW

Design and product research

SE Wales

Cardiff Met

Plant/crop breeding

West Wales

Aberystwyth

Nuclear power technology

North Wales

Bangor

Advanced materials

SW Wales

Swansea

Energy technologies

SW Wales

Swansea

Non-destructive testing

SW Wales

UWTSD

Source: Interviews with Welsh HEIs 18 This is not directly equivalent to asking where the university sees itself with regard to its research or teaching capabilities. Clearly, the Research Excellence (REF) and Teaching Quality assessments would provide a more objective picture of these more specialised capabilities.

27 In addition, ‘hot spots’ for university-business collaborations that were felt to be emergent were also noted.

Figure 23: Emerging ‘hot spots’ of UBC as identified by HEIs Emerging ‘hot spots’

Region

HEI

Cyber security

SE Wales

Cardiff /USW

Environment

SE Wales

USW

Digital manufacturing

SE Wales

Cardiff Met

Food and drink

SE Wales

Cardiff Met

Data science

SE Wales

Cardiff

Software

SE Wales

Cardiff

Parasitology/infectious diseases

West Wales

Aberystwyth

Food and drink technologies

West Wales

Aberystwyth

Advanced manufacturing

North Wales

Bangor

Energy and environment

North Wales

Bangor

Life sciences

SW Wales

Swansea

Computational science

SW Wales

Swansea

Construction innovation

SW Wales

UWTSD

Source: Interviews with Welsh HEIs

28 There is a clear alignment here with those sectors and technology disciplines that are most highlighted as priority sectors/disciplines in the various polices, strategies and plans described in the earlier section.

Figure 24: Alignment of collaboration ‘hot spots’ with strategy priorities ‘Hot spots’ ascribed by policy/strategy etc.

‘Hot spots’ ascribed by HEIs

Emergent ‘hot spots’ ascribed by HEIs Parasitology/infectious diseases

Life sciences and health

Plant/crop breeding Life sciences

Low carbon energy and environment

ICT and the digital economy

Advanced engineering and materials

Hydrogen centre

Construction innovation

Nuclear technology

Energy and the environment

Energy technology

Environmental technologies

Compound semiconductors

Cyber security Digital manufacturing

Automotive and power systems

Advanced materials

Aircraft maintenance

Advanced manufacturing

Design and product research Food and drink technologies Others Food and drink

It is worth noting that the ‘hot spots’ identified either as existing or emerging by the HEIs shown in the tables above are aligned with those in the Smart Specialisation (SS) strategy for Wales, with only the SS priorities relating to medical technologies and applications missing from the HEI assessments for this research. It is possible that one reason for this is the focus - in this current research - on collaborations with businesses as opposed to wider practitioner/clinician collaborations.

Figure 25: Smart specialisation priorities for Wales

Low carbon energy/Smart Living/Eco innovation

ICT trust and cyber security

Wound healing/Neuroscience/Medical devices

e-health and Health informatics

Drug discovery

Food security

Advanced materials/Photonics/Compound semi-conductors

Materials evaluation and testing/Maintenance, Repair and Overhaul (MRO) Source: Smart specialisation platform (RIS3) and Innovation Wales 2015

Interviews with business tended to confirm the HEI assessment of the ‘hot spot’ areas as described above. Businesses – both large and small – tend naturally to have contacts with universities in their particular areas of interest and therefore are rarely able to give an overview of technology areas and research and collaboration capabilities that do not relate to them directly.

In discussion however a number of important points were made including:

••

Data analytics, cyber security and cyber-forensics as a rapidly emerging area of interest for companies and researchers from a number of Welsh universities. Collaborative initiatives are already underway, albeit on a relatively small scale so far.

••

Welsh universities have a long-standing but often under-appreciated expertise in advanced engineering disciplines, including advanced materials and coatings, particularly at Swansea and Cardiff. A number of businesses felt, however, that the focus has moved onto niche applications of this expertise, which makes it attractive to research funders but confusing for businesses to interact with. Collaboration with businesses is long- standing in many aspects and could be given a stronger focus.

••

The Life Sciences companies interviewed exhibited greater enthusiasm for the expertise and business collaboration opportunities that was reported to us by the HEIs themselves. For example, nationally important strengths in population and healthcare data and regenerative medicine were reported by anchor businesses.

Challenges to better university-business interactions in Wales

The biggest common challenge facing all the universities interviewed for this research was the lack of innovation and engagement (I&E) funding referred to in Section 4 above.

One of the consequences of the loss of I&E funding was the pressure it placed on internal resources. As one university put it:

The resulting pressure on staff resources and expertise was picked up by another university:

“The abolition of I&E support was a complete tragedy because it halted all the good work that was being done in university-business collaboration relationships and put added pressure on HEIs to support that work from their own internal resources”

“It means the university struggles to retain staff to manage university-business collaboration partnerships because working with strategic business partners is hugely time-consuming”

In addition, the contrast with English and other UK universities compounds the problem because:

And, further:

“The key challenge is the absence of I&E funding support, which shackles HEIs in Wales compared to HEIs in the rest of the UK”

While the external funding and policy environment present barriers, all the universities freely acknowledge the internal barriers to business engagement. Businesses have little appreciation of the funding challenges faced by the universities with which they seek to collaborate. However, the identification of the challenges listed above is clearly reflected in the responses to the mirror question;

“The biggest barrier to effective knowledge exchange is the lack of I&E funding, which places Welsh HEIs at a significant disadvantage to their English counterparts”.

“What challenges are there when seeking to collaborate with Welsh universities?” For example, universities identified the lack of alignment between the internal culture of a university and the corporate culture of the businesses with which it seeks to interact. Businesses concurred with the view that, where research and innovation is concerned, we are all too risk averse, intolerant of failure and don’t value risk-taking.

31 Universities felt that there is now a rather negative status attached to knowledge transfer activity among the academic community. This was also recognised by businesses. One registered its surprise at how poorly attended university network seminars and breakfast meetings had been with respect to rank and file researchers. The company concluded that researchers either don’t get invited or are not incentivised to make the effort to turn up. Similarly, an anchor company commented that as far as business liaison (commercialisation) teams at Welsh universities are concerned, they have been disincentivised by the funding and culture around business interaction activity in universities. The internal university structures and procedures are frequently seen, even within the universities, as overly rigid and mired in large amounts of red tape, which militates against the type of flexible systems required in the knowledge exchange arena. Businesses were also vocal on this point and were able to quote a number of areas where this had proved problematical - as in the following quote: “IP treatment is a perennial problem. Universities overvalue IP from collaborations and seem unable to take commercial or realistic decisions on the price, the value and commercial risks.” Similarly another SME noted that in its experience: “HEIs are not flexible – they have procurement rules and have to recover costs so that SMEs feel left out. When they want to collaborate they go to big companies who are able to take more risk.” The business community also raised three further issues that were not specifically identified by the universities, but which the former deem to be important challenges. Firstly, the lack of strategic long term visions and ambitions with which to underpin collaboration between businesses and universities and businesses was felt by a number of businesses to be critical if it was to lead to growing value in the economy and for society as a whole. This was noted by one anchor company as “a long-term game and a long-term journey - we need to find a commitment to investment over the longer term. The impact agenda of universities should provide the focus for this more strategic long-term approach”.

A different business also commented on the challenge of working with universities when the “interaction between universities and industry is too fragmented, small scale and lacking in strategic direction”. A further comment reflecting this challenge was that “the lack of coordination and cooperation across the higher education sector in Wales is having a very negative effect on its ability to engage with industry, due to the lack of a clear strategic direction and voice”19. Secondly, matching up academic expertise with what industry needs is a perennial challenge for both sides. Although universities have invested in web sites, directories and contact offices, this investment is clearly not felt to be effective by many businesses. One SME manager (which is a collaborator with a number of UK universities) commented that there is a “lack of information about who is doing what and where they are as well as a labyrinth through which a researcher and the company have to manoeuvre to deal with university bureaucracy, it’s a wonder any collaborations get done.” Pertinently, another commented that through attendance at many networking events and ‘open day’ type activities, they had come to the conclusion that “senior university people are enthusiastic but don’t understand the strengths on the ground let alone who specifically can do the work required”. Finally, the value of local eco-systems and supply or value chains was an important factor for businesses – whether anchor companies or SMEs in lower tiers of value chains. However, this imposes time constraints on businesses seeking research or innovation collaborations with universities since they are at the whim of the higher tier customers in their value chains, meaning that timely production of results from research projects is critical. Further, to be effective innovation partners, businesses are looking for university partners with a better understanding of the flow of research results, technology innovations, product development and improved processes. Businesses felt this to be an area where greater investment and attention could be placed by universities.

19 Lack of a strategic long term vision and ambition was also made strongly in the stakeholder consultation that took place in 2016 as part of the exploration of the case for a National Innovation Body.

Opportunities to grow value through universitybusiness interactions

The research has suggested a number of key areas where opportunities to grow value from universitybusiness interactions may lie in Wales. Building a better strategic approach to collaboration was identified by a number of the universities as both an opportunity and a necessity. Businesses also felt that this is a critical opportunity that, if taken, would improve their confidence and willingness to collaborate with universities. Relationships amongst universities themselves were said to be more difficult to establish and manage than relationships with blue-chip company partners. One anchor company noted that they have had a memorandum of understanding with two Welsh universities for some time. While it has worked well for the most part, allowing university researchers to use the companies’ specialised equipment and the outsourcing of testing and certification functions to the university partners, it also noted that the relationship has become less strategic and more transactional over time. Another company has found that working relationships have become more competitive across their partner institutions needing the company to ‘wield a big stick or offer a carrot’ to get their university collaborators to better work together on a number of occasions. An anchor company has developed a special memorandum of understanding with one of the UK Research Councils and this has helped them develop a research agenda that meets the needs of the business and relate to other businesses in the field nationally. Welsh universities have been significant beneficiaries of this approach.

The strategic research agenda approach developed in the East Midlands, and specifically with Loughborough University, was highlighted by one Welsh based anchor company. Basic technology, large scale industry research, big investments from the university, research and consultancy contracts, strategic relationships with large manufacturers were all part of the relationships that have been built up. A number of companies and universities noted that the strategic approach taken to develop the case for a stream of activity around compound semiconductors with Cardiff University and IQE PLC and Swansea University and a range of industrial partners in SPECIFIC were blueprints for strategic approaches leading to the development of further research and innovation hot spots involving key sectors, businesses and Welsh universities. A better understanding of needs and opportunities between universities and businesses can be expected to lead to the creation and maintenance of strategic partnerships and engagements. There is a good opportunity for businesses and universities/academics to work together on research projects that will support the needs of businesses as this is now the thrust of a wide range of government assistance. It is clear however that this requires a culture shift in a number of cases where academics are less willing to engage with this agenda. One key to successfully achieving the required culture change will be the strong, visible and sustained championing of university-business collaborations by senior leadership within universities. Businesses felt that senior university managers had “taken their

A better understanding of needs and opportunities between universities and businesses can be expected to lead to the creation and maintenance of strategic partnerships and engagements.”

foot off the gas” in recent years. Although university management has to cope with new pressures at times of austerity, the business community feels similar pressures from shareholders and investors and it needs to know that its academic partners are equally committed to research and innovation. A critical opportunity that was identified by the universities but which is also understood by businesses interviewed for this research, is to achieve a ‘parity of esteem’ between teaching, research and business engagement in university salaries, promotion and management structures and incentives. One business noted that where collaboration had worked for their business, there had been a clear involvement of senior staff from the ‘centre’ of the university rather than simply from within a research centre or research team. This had given the knowledge exchange activities parity of esteem with other academic activities. A number of the universities interviewed said that they had indeed sought to develop and improve internal structures, especially with regard to staff contracts, accreditation, reward systems, and more generally making ‘innovation’ a central feature of their university’s strategic vision and aims. The key aim is to facilitate cultural change within the university that ensures a more prominent and sustained position for knowledge exchange across the institution.

Finally, the benefits of working with anchor companies in particular will be enhanced where the collaboration takes into account the value chain aspects of the business. This will not only allow the wider research and innovation opportunities to be revealed but will create the opportunity for the university partners to identify and work with more local SMEs, to outsource some activities to specialist SME providers in the value chain and, finally, to act as an intelligence gathering tool to identify skills needs, shortages and new technology opportunities. The opportunity is therefore to build whole value chain collaborations spreading the costs and expanding the positive benefits across a wider range of activities. In taking such an opportunity it is not really necessary for the university to take the lead. Indeed there is evidence to suggest that with a key anchor company in place, the university needs to assemble a different set of skills to enable it to play a creative, project-enhancing role rather than a transactional role. Further, there are examples in Wales, including the Compound Semiconductor Centre, where the anchor business was the key player rather than a junior partner to the university. In other cases, such as the embryonic clustering of activities at the OpTIC Centre St Asaph, there is an opportunity to ‘scale up’ the technical capacity and capabilities of both businesses and researchers in North Wales working in a range of technologies.

Report conclusions

In both the academic and policy literature the important role of business-university collaboration is clearly established. Universities are critical to the functioning of the knowledge economy and their pivotal place alongside businesses of all types in innovation ecosystems is not seriously challenged. It is important to acknowledge that the role of universities is a holistic one that is not simply about generating leading-edge research results, but is also seen through collaboratively working with business on contract research, consultancy and crucially collaborative research endeavours. Furthermore, universities are seen not simply as a supplier of research results but as fundamental to the development and sustainability of local innovation ecosystems with the capability to collaborate with businesses on strategic research initiatives, engaging in cluster building with large and small companies and helping to mobilise entrepreneurial and innovation instincts and cultures in their local areas and within their research and graduate communities. Wales is however in a relatively weak position with regard to the traditional metrics of research and innovation performance such as the percentage of GDP expended on R&D investments by firms. Conversely, however, there is evidence that Welsh firms are on average at least as active as innovators as their counterparts in other parts of the UK. While innovation and technology have been close to economic development policy thinking for at least the last 20 years, the intensity of working within

and across that landscape is not as great as that which occurs in other nations and regions of the UK, where universities play a more pivotal role in densely networked innovation ecosystems. On the basis of this analysis, the recent report on a potential National Innovation Body for Wales concluded that “if Wales accepts the status quo in innovation policy, then it will not tread water but will drift backwards, falling further behind our peers as they ‘up their game’ to become more innovative and responsive economies. In short, ‘business as usual’ can no longer be regarded as an acceptable economic policy approach.” It appears that, in Wales, a number of factors are at play in this respect. Firstly, the dominance across much of Welsh industry of global value or supply chains means that take-up of external sources of innovation and ideas from universities or other sources plays second fiddle to sources that fall within firms’ supply or value chain. A linear rather than networked set of interactions therefore emerges and may make interaction by SMEs with universities more difficult than in economies where value chains are less dominant. Furthermore, the number of Welsh universities and their geographic dispersal means that research excellence is thinly spread - although Cardiff University’s dominance of collaborative research through Innovate UK and Horizon 2020 is a positive counter to that dispersion.

It is important to acknowledge that the role of universities is a holistic one that is not simply about generating leading-edge research results, but is also seen through collaboratively working with business on contract research, consultancy and crucially collaborative research endeavours.”

35 The low levels of contract and consultancy income generated by Welsh universities relative to other UK nations and regions is an indicator of low levels of interaction with businesses although, paradoxically, these sources of income are, in absolute terms, vital for Welsh universities. Finally, the lack of innovation and engagement (I&E) funding for Welsh universities in recent years has had a noticeable and seriously debilitating effect, putting Welsh universities at a serious disadvantage relative to their UK counterparts. The lack of funds has multiple consequences, the most serious of which is the fact that it becomes more and more difficult to recruit and retain seasoned professional knowledge exchange staff, the brokers of collaboration. The ‘hot spots’ identified in this research demonstrate a coherence across business, universities and government policy as far as priority sectors and technologies are concerned. In addition, however, a number of potentially important emergent ‘hot spots’ were identified that are aligned with the Smart Specialisation priorities for Wales. Looking ahead, the key issue is the process through which ‘hot spots’ are prioritised and developed – and there are good reasons for thinking that future ‘hot spots’ need to be identified through a more strategic, transparent and collaborative approach involving business, universities and government. This should be supported by the development of clear and distinctive business models for each ‘hot spot’ and a recognition that not all will require the same funding mechanisms, partners or operating relationships. Flexibility and creativity will be required and inter-institutional barriers will need to be overcome from the outset. There are existing examples in Wales that can act as templates. The identification of emergent ‘hot spots’ demonstrates that traditional technology metrics may not be the most appropriate route for Wales to take. While technological innovation will always have a favoured place in a competitive global environment, it is no longer sufficient to create and grow the innovation-driven businesses that Wales needs.

By recognising the power and importance of value chains and local ecosystems, there are new opportunities that can be developed that rely on timely conversations and better coordination across the ecosystem, where business, researchers and policy makers learn to collaborate for mutually beneficial ends. Constructive and creative conversations will be crucial before investment plans can be developed and funded. The universities themselves need to step up their focus on innovation and research through collaboration with business focusing on achieving strategic leadership of the I&E activity internally, shifting their limited cultural focus to accommodate parity of esteem and incentives for those working with business rather than those solely focused on research outputs. Fragmentation and lack of coordination within Welsh universities need to be addressed before the private and third sectors are willing to get more deeply engaged. Since Welsh universities will not have access to ERDF sources to fund collaboration programmes (like KEF, Smart Expertise, ASTUTE etc) in the near future, finding ways to invest limited funds more wisely and with more impact will be the key to future success. Finally, rehabilitating innovation and engagement funding would seem to be an obvious first step to put collaboration in Wales on a par with other UK nations and regions.

An action plan to grow value

Action required

Key responsibilities for action

1. Strategic vision and approach needed Building a better strategic approach to collaboration between universities and business is essential. The lack of a strategic long term vision and ambition with which to underpin collaboration between businesses and universities weakens and dissipates the efforts that both are making in this respect. Ideally, future ‘hot spots’ need to be identified through a strategic, transparent and collaborative approach allowing clear and distinctive business models to be developed and resourced for each ‘hot spot’ as circumstances require.

Welsh Government in partnership with the leadership of Welsh Universities and key business and industry leaders

The strategic approach taken to develop the case for a stream of activity around compound semiconductors with Cardiff University and IQE plc and Swansea University and a range of industrial partners in SPECIFIC are blueprints for strategic approaches leading to the development of further research and innovation hot spots involving key sectors, businesses and Welsh universities.

2. Leadership & consistency Businesses regard strong, visible and sustained championing of university-business collaborations by senior leadership in both universities and businesses as crucial to the creation of the appropriate culture and conditions for interactions and collaboration to take place. In particular, the business community needs to know that its academic partners are equally committed to collaboration and innovation. The status of knowledge exchange within universities and the career structures, academic resources and rewards are all areas that need to be addressed by university leaders. By working towards a ‘parity of esteem’ between teaching, research and business engagement in universities, the weaknesses identified by universities and recognised by businesses in respect of commitment, talent and sustainability of collaborations can begin to be overcome.

Leadership of Welsh Universities and Industry

3. New models of innovation While technological innovation will always have a favoured place in a competitive economy, it is no longer sufficient to create and grow the innovation-driven businesses that Wales needs. Since manufacturing is as much about process and service as it is about product and technology, Wales needs to build process and service innovation into its overall strategising on innovation, including social innovation and public service innovation. Universities can play a major role here by mobilising their capacity to be creative, bringing social science and the disruptive power of data science and analytics to bear on the societal grand challenges around which future interaction and ‘hot spots’ will develop.

Welsh Government, the Innovation Advisory Council for Wales, industry representative bodies, Universities and Civil Society Groups

Action required

Key responsibilities for action

4. Mobilising the innovation potential of value chains The benefits of universities working with anchor companies and SMEs will be enhanced where the collaboration takes into account the value chain aspects of the business. This will allow wider research and innovation opportunities to be revealed and will create the opportunity for university partners to identify and work with more local SMEs and to outsource some activities to specialist SME providers in the value chain.

Industry and Welsh Universities

With key anchor companies engaged, universities should be free to play a creative, project-enhancing role rather than its traditional transactional role based on contract research alone.

5. Rehabilitation of I&E Funding Investment in collaboration in Wales should be reinstated to allow Welsh Universities and businesses to operate on a par with other UK nations and regions. The Diamond Review argued that Wales needed an enhanced partnership between universities, business and government to maximise the social and economic benefits that can be derived from HEIs. Therefore, it recommended that Welsh Government, through HEFCW (or its successor body), should provide a dual support system of knowledge exchange funding, consisting of hubs of university-business interaction receiving core funding of ÂŁ5 million per annum to enable agile and flexible engagement between HEIs and industry, and, a scheme that would allow universities to be more flexible and responsive in their work to promote university-business collaboration projects that have a potentially strong and significant economic impact.

Welsh Government to implement Diamond Review

6. Better access points to university expertise and resources A better understanding of the needs and opportunities between universities and businesses, matching up academic expertise with industry needs is a perennial challenge. Businesses require clear knowledge of and easy access to university partners in order to maximise the impact of research results on their businesses and the economy. By being able to better understand how research results can be captured to boost innovation, product development and process innovation, universities could achieve greater value and economic impact through their knowledge exchange and business collaboration activities. Creating a flexible and responsive platform or access point is one of the Diamond Review recommendations. Such a platform could link together all Welsh Universities using modern digital platform and networking technology, potentially supplemented by strong SME/Anchor business network capabilities. One practical way of doing this is for both parties to work through the bethespark.com digital platform which aims to connect all the key stakeholder groups in the knowledge economy. The Federation of Small Business has suggested itself as a possible partner with â&#x20AC;&#x153;boots on the groundâ&#x20AC;?.

Welsh universities in partnership with industry bodies and other partners

WORKING TOGETHER FOR GROWTH AND PROSPERITY

National Centre for Universities and Business

Studio 10, Tiger House, Burton Street, London, WC1H 9BY info@ncub.co.uk

www.ncub.co.uk

+44 (0)207 383 7667

@NCUBtweets