12 minute read
Measurable, time-bound Innovation Missions demand new ways of working
2
What does this more strategic role for Government mean in practice?
Central to the Innovation Strategy are plans for a new programme of specific, measurable and timed Innovation Missions, focussed on some of the Government’s highest policy priorities, potentially including climate change, biodiversity, pandemic preparedness and the impact of an ageing society. These Missions will be inclusive by design, mobilising all sectors of the economy including the public sector, industry, civil society and universities.
This represents a new direction for UK innovation policy, which has historically shied away from providing direction through ‘measurable and timed’ objectives – in part no doubt because of the long shadow cast by industrial policy failures of the past. So for example the 2017 Industrial Strategy, which this Innovation Strategy succeeds, defined strategic themes in the form of four Grand Challenges, to provide strategic alignment for specific missions, individual challenges and over 1,600 projects.4 But while a step beyond historical focus on horizontal, sector-agnostic policy such as R&D tax credits, the Industrial Strategy stopped short of a commitment to specific, measurable goals.
We welcome the Innovation Strategy’s move to introduce specific, measurable and timed Innovation Missions, because:
• They provide a mechanism for more directly tying public investment in innovation to progress against the social and economic objectives that matter most to the public. They thereby complement growing investment in basic scientific research, which will continue to be the bedrock of the UK’s R&D system. • They provide focus and direction that can help coordinate the many different players in the economy whose contribution is needed to tackle significant challenges. By making
Government priorities more explicit and its future actions more predictable, credible
Missions can provide a firmer basis for private investment decisions than broad themes.
They could thereby help translate growth in public investment in R&D to growth in private investment, helping to correct the UK’s longstanding R&D investment deficit. • In moving the focus away from process to outcomes, they help strengthen accountability, encourage experimentation with different approaches and allow for more robust evaluation and assessment of ‘what works’.
Mission-oriented innovation policy and the UK Vaccine Taskforce
While much discussed in recent years, missionoriented innovation policy has historically suffered from a lack of UK success stories. The COVID-19 pandemic has however created another success story in the form of the UK Vaccine Taskforce, and the plan set out in the Innovation Strategy is described as being based on learnings from the pandemic.5
The Taskforce:
• Had a clear, verifiable, challenging but achievable objective to ‘secure access to promising vaccine/s for the UK population’.6 • Signalled its intentions clearly and credibly, enabling industry players to make investment decisions with confidence and to focus on the risks they were best placed to manage. • Enjoyed extensive delegated authority and freedom of manoeuvre, combined with clear accountability, and benefited from expedited approval processes. • Brought together and coordinated action by
Government (including regulators), industry and academia under expert leadership. • Took a holistic approach to addressing the challenge, including not only vaccine development but also manufacture and distribution, and making progress on these issues in parallel rather than sequentially. • Took a portfolio approach to its investments, balancing off different kinds of risk against one another in the light of the overall objective being pursued.
The Taskforce provides an unusually clearcut example of public investment generating demonstrable innovation outcomes at pace. Its success has led many to ask: why can’t innovation policy achieve similarly rapid, demonstrable successes against other urgent priorities, for example in the fight against climate change or dementia?
Of course, the conditions within which the Taskforce was created and operated were extraordinary. It was a crisis situation unprecedented in living memory, creating a ‘whatever it takes’ mindset in Government. There was a strong consensus that securing access to vaccines should be an overwhelming priority, there were strong grounds for confidence that COVID vaccines could be developed (based on past successes), and the benefits promised by vaccines vastly outweighed the costs of developing them. There was also an unusually high intensity of public interest in progress, including through the media and the political process.
An obvious difficulty is how to create a similar sense of urgency and focus for other innovation priorities, including addressing no less devastating but less immediately salient challenges such as climate change. Credible Innovation Missions can create conditions similar to those that drove the success of the Vaccine Taskforce. Specific, measurable, time-bound Innovation Missions will demand new ways of working to take advantage of the opportunities this new approach offers. This will be strengthened by the governance role played by the new National Science and Technology Council, chaired by the Prime Minister, in defining and steering the Missions. Further, while the budgetary freedom enjoyed by the Taskforce was exceptional, its model of operational flexibility combined with strong accountability and expert leadership could serve as a model for the Innovation Missions.
Specific, measurable, time-bound Innovation Missions will demand new ways of working to take advantage of the opportunities this new approach to innovation policy offers. In particular the new principle of organising policy around measurable outcomes, rather than basing it on broad themes or established processes, creates opportunities for greater methodological diversity, flexibility and experimentation and more open engagement with all parts of the UK innovation ecosystem.
So we welcome the Innovation Strategy’s commitment to employing ‘a diverse range of funding and policy instruments’7 to support Innovation Mission objectives and to make the most of the wider economic benefits they offer. Among these diverse instruments, we believe there is a particularly strong case for challenge prizes to be one of the fundamental building blocks used in Mission planning and deployment.
Challenge prizes complement grants in risk-balanced innovation portfolios
The default instrument used for publicly-funded R&D is the grant. Though data are not available for the breakdown of public R&D by funding instrument, it is clear that grants predominate in the approximately £15 billion that Government will spend on R&D this year.8 Is this dependence on a single kind of funding instrument the best way to maximise innovation outcomes from public investment in R&D?
Grants are the right instrument to use to fund basic research undertaken without a view to marketable applications. Government subsidizes R&D on the basis of market failure: the social returns from R&D exceed the private returns, because the knowledge created through R&D ‘spills over’ to market rivals.9 This certainly characterises much fundamental or basic research, and it is also usually impractical and undesirable to specify in advance what the outputs of such research should be. Grants are a necessary instrument for financing such research.
But the case for grants as the Government’s default instrument of choice weakens as the potential for private returns to R&D grows, and as it becomes more practical and desirable to specify the outputs sought from R&D:
• Grants risk over-subsidising R&D that has greater potential for private returns, to the detriment of value for public money.10 • Grants are (at best) difficult to reconcile with the pursuit of specific outcomes. Grants by design are not outcome-contingent funding instruments. • Grants can be more detrimental to competition than other methods, conferring an advantage on some market participants over others.
The new Innovation Missions are intended to be much closer to marketable applications than basic research,11 and will by design specify measurable outcomes. In such situations, other methods including challenge prizes12 offer different, and in some circumstances preferable, instruments for sharing risk and reward between the public sector and private innovators and for achieving targeted outcomes.
In The Great Innovation Challenge, 13 published in 2020, we made the case for challenge prizes to play a much more significant role in the way Government supports R&D in the UK, as part of a balanced portfolio of approaches that is likely to be more effective than overwhelming reliance on a single mechanism. The introduction of specific, measurable, time-bound Innovation Missions make the case for a significant role for challenge prizes even more compelling.
While no two challenge prizes are exactly the same, their common characteristic is an orientation towards outcomes rather than inputs. The rewards offered to innovators by challenge prizes are (at least in part) conditional on the successful achievement of outcomes. In this they contrast markedly with R&D grants, which provide rewards (often following a competitive process) conditional on the promise of effort.
The key differences between challenge prizes and grants can be summarised, in very broad terms, as follows:
In the prototypical challenge prize, many innovators compete and collaborate with one another to achieve the goal set by the funder; in grant programmes, innovators propose projects to the funder who then selects one (or more) for funding. Grants are well suited to expanding the knowledge frontier, while challenge prizes are well suited to applying knowledge to solve problems.
Based on these characteristics, The Great Innovation Challenge sets out some common sense criteria for identifying situations particularly suited to the challenge prize model:
• The goal to be achieved can be clearly and confidently defined, backed up by unambiguous criteria – so innovators know what they are being asked to do. • There is a clear benefit from fresh thinking and new innovators – for instance a field that is stagnant or has too few players in it. • New innovators could be effectively incentivised to take part – because the financial reward is sufficiently attractive and the barriers to participation sufficiently low. • The funding and support will accelerate progress – rather than just fund activity that was already going to happen. • There is a path to financial sustainability for the successful teams – so that the winners do not disappear once the prize money runs out.
Challenge prizes…
... Specify a desired goal or outcome
... Are focussed on what the funder wants
... Provide a reward conditional on delivery of the outcome
... Have open participation Grants...
... Specify the input/ effort to be delivered
... Are focussed on what the grantee proposes
... Provide a reward conditional on promise/ potential
... Limit participation to the grantee(s)
In practice, government innovation investments14 are often made not in isolation but as part of a portfolio of investments aiming at the same high level goal. So the question for any individual innovation investment is not only: “What is the best instrument for this investment, e.g. grant or challenge prize?” but also: “How does this investment – including the choice of instrument – affect outcome risk in the overall portfolio?” And because challenge prizes and grants have different and complementary risk profiles, balancing them out in a portfolio can reduce overall risk.
Investing in innovation entails taking on and managing risk and uncertainty. The successful outcome of individual innovation investments made by Government can, and should, be uncertain, but the uncertainty of individual projects can in part be mitigated through a portfolio approach. This was exemplified by the Vaccine Taskforce which, as the Innovation Strategy describes, “took a portfolio approach with the knowledge that value for money could not be assessed at the individual spending decision level.”15
While typically portfolio risk management is framed in terms of the mix of projects invested in, the portfolio mindset should also extend to the range of funding instruments used because the instruments themselves can complement each others’ risk profiles. For the highest risk, most uncertain innovation investments of the kind made by Government, a portfolio approach should mean not only investing in different projects – but also using a diversity of funding instruments that complement one another.
Grants and challenge prizes entail different kinds of risk for Government as funder:
• Grants entail a principal-agent problem: once the grant is made, it is difficult for the funder to ensure the recipient is using the funds as intended. Attempts to mitigate this problem can result in onerous monitoring requirements and inflexibility that are inimical to innovation.16 • Grants tend to concentrate the funder’s risk, because the funder has to select one (or a small number of) grant recipients based on the
information it has available to predict grantee performance. Selecting the ‘right’ grantee can be a high stakes decision based on highly imperfect information. • Challenge prizes require the desired outcome and associated reward to be specified in advance. This entails the risk of defining the
‘wrong’ outcome, or providing an inadequate or excessive reward for its achievement.
For both grants and challenge prizes there are ways of mitigating their respective risks.17 But the risks of each method also naturally offset each other. For example:
• While grants concentrate risk on selected grantees, challenge prizes typically diversify risk among many participants who compete and collaborate with one another;
• While challenge prizes require a desired outcome to be specified, grants programmes can be open to outcomes being proposed by grantees.
The upshot is that combining challenge prizes and grants (and other instruments) in a portfolio can help diversify the risks faced by Government in funding R&D. For any individual innovation project one method may ex ante be preferable to another. But for portfolios of projects – such as the Innovation Missions – the choice is not between challenge prizes or grants, but how best to combine them in a portfolio.
The challenge prize model aligns strongly with measurable, timebound Innovation Missions
Although the specific focus of the individual Innovation Missions has not yet been determined, the Innovation Strategy describes the key characteristics they will share.
They will:
• Target a clear and measurable outcome and be timed • Tackle some of the most significant issues confronting the UK and the world • Draw on multiple technologies and research disciplines • Work with different industries and supply chains • Tackle innovation, manufacturing and logistical challenges • Coordinate policy across the whole of government • Invest at risk in portfolios of projects • Employ a diverse range of funding and policy instruments
There are strong prima facie reasons for challenge prizes to be central to the way these Missions are delivered.
• Challenge prizes are themselves processes that seek to achieve measurable outcomes to a timetable. Like Missions, they have an in-built urgency and focus that can be lacking in grant programmes. Challenge prizes are therefore natural ‘building blocks’ that fit consistently within the overall architecture of a Mission. • Challenge prizes are a particularly powerful tool for engaging a wide range of businesses in the Government’s innovation priorities. They are naturally low in bureaucratic overhead and have low barriers to entry relative to grants, by virtue of their focus on outcomes rather than on pre-award disclosures and post-award monitoring. • Challenge prizes can serve as an energising focal point for multiple stakeholders, both within and outside government. During most of the lifetime of a prize its outcome is still uncertain, which naturally creates interest, excitement and an appetite to ‘get involved’.
With grants programmes, by contrast, focus and interest can dissipate once the grants have been awarded.
• Challenge prizes work by setting in train diverse approaches to solving a problem – they are themselves a portfolio-based approach. By contrast grants programmes typically place their bets on one or a small number of approaches to a problem following a competitive process, basing their award decision on a combination of the quality of the case made and on reputation.
