Reflections on the UK's innovation ecosystem

Projects aimed at increasing innovation need a clear definition and scope

There was consensus from across our conversations that ‘innovation’ needs to be clearly defined and contextualised in terms of an organisation’s objectives. For example, is the organisation focusing on innovation exploration or exploitation? Without a clear definition and desired outcomes to measure against, innovation strategies can have lacklustre results. Having a single organisation-wide innovation strategy was seen as preferable.

Although there is agreement on the key challenges, there are differences on strategies to address them

Two differing perspectives emerged on the challenge of harnessing innovation in defence. One focused on disruption, particularly around defence: the existing paradigm is fundamentally misaligned with national priorities and new systems have to be built to replace them. The other insight was that the core bottleneck in innovation results not from having the wrong systems in place, but from using the systems we have in the wrong way. To use procurement as an example, some felt that the entire system needed remodelling if emerging and disruptive technologies are to fill the defence capacity gap as set out in the Integrated Review. Others, however, argued that procurement frameworks could deliver, but that those operating them are incentivised against using them in a way that supports taking risks, crowding innovation solutions out.

Triangulation and coordination are necessary to effect change

Most of the ideas discussed in the paper are not new. For example, here is the Catapult Network submitting written evidence on the potential of ‘targeted demand side innovation policies’ to help pull technology through the latter TRL stages. This concept has been used in other countries, has been referred to by ARIA as acting as a “venture customer” two years later, and more recently in this article as “buyers of first resort”. Defence procurement reform has been on the agenda for longer than a decade. Neither the problems we are looking to solve nor the solutions proposed are new – the challenge is in building and channelling the impetus to address them.

What we have seen in the last eight years or so is that incremental reform can be undermined by inertia and regular changes in leadership, and that a more aggressive “slash and burn” approach is poorly tolerated. Through this process we found that while there was strong support for ideas and policy solutions, organisations from research institutions to industry, finance, and government were sometimes not aware of shared problem sets or of others’ interest in similar solutions. By working in closer collaboration, there is an opportunity to advocate for and implement a common agenda.

The relationship between primes and smaller, younger companies is complex

There is a narrative across the ecosystem that the relationship between prime contractors and their smaller partners is almost always challenging. Younger companies and SMEs sometimes felt that predation was at the core of their interactions with primes. On the other hand, some primes felt they were unfairly characterised in this way, as they were collaborating effectively and driving innovation in their projects. Clearly there is a tension inherent in the design, tender and contract defence procurement model; ?newer companies believe that they can scale effective solutions quickly, if given the chance.

Getting better at saying ‘no’, being more bold and moving faster after saying ‘yes’

Most in industry, from new companies to older primes, considered that there was too much uncertainty in the procurement process. For larger companies, this was often in the form of big contracts being delayed. ? For younger companies, the main concerns were about contracts being renewed at the last minute, or about work being supported through various innovation organisations, only for there to be no commercial contract opportunities once viability had been achieved.

Younger companies in particular felt that if they weren’t to be given full support or commercial opportunities, a clear ‘no’ earlier on from government would allow them to allocate resources more productively. They also felt that where there was a ‘yes’, support was stilted and the full potential of their offerings were sometimes not fully realised.

What can be learned from the intensity and commitment of the vaccine rollout and the effort to support Ukraine?

A common refrain (which ?also appears in the paper) was that we must learn both from the pandemic and the war in Ukraine, as they evidence our capacity to harness the UK’s innovation ecosystem rapidly and effectively in the national interest. However, context must be considered when lessons are drawn. For one, both are emergency scenarios in which two points of the ‘project management golden triangle’ (time is short and cost is high) become fixed, broadly aligning incentives with delivering functional solutions, quickly. Outside of this context, these points are not fixed and there is greater scope to slow the pace and impose tight budgetary control.

This means we can’t just ‘task force’ or, as per the US, ‘Warp Speed’ everything we see as strategically valuable. In the case of the pandemic, there were few financial constraints, paired with significant time pressure and a very clear goal: develop and roll out a Covid-19 vaccine.

This excellent piece points out that the vaccine rollout in the US (but also applicable in the UK) “became about brute force. Could you simply make things happen faster, execute faster than ever before”? This might have some applicability in acquiring key (although not urgent) ?defence capabilities, but would require very clear high level objective setting and protocols for collaboration across research, industry and government. It worked for the vaccine rollout given the emergency context and, in some cases, due to strong interpersonal relationships, but these can wax/wane with changing organisational leadership.

Rapidly mobilising resources towards high priority goals works best when our ‘innovation base’ is strong – so we can draw on R&D, S&T advantage to solve problems. For this to be the case, our finance and innovation support systems should be working with clear objectives and as part of a greater whole.

Innovation support organisations should be focused on solving particular pull-through challenges

Some felt there was a lack of clarity around where innovation support organisations sat in the value chain. There was a sense that while there are good levels of support for challenges at various stages of the value chain, there was no clear path to take an idea from concept to commercialisation. ?For newer defence companies in particular, there was interest in the US DOD system in which partnership with a Department representative supports relationship building with the right organisations. ?

Different types of project require different funding vehicles

The challenge of financing the scaling of innovative and relatively young companies was keenly recognised. For example, the defence market in particular can be challenging for VCs – some of the companies doing early stage research might not be able to commercialise within a short enough time frame, and VCs will typically want tech to be dual use or general purpose given the bigger potential customer base, even if it isn’t a good product-market fit.

Just as with accelerators and incubators, the right commercial support for the right company, at the right stage of its development, is crucial. If we are focusing on scaling over a longer time frame, government demand side support, corporate venture, and patient capital will have to play a larger role.