Where should the public purse support Innovation?

In the week that Game of Thrones returns to TV, it’s fitting to revisit the favourite phrase, “Winter is coming”. It’s a little late in a way, as it arrived a few months ago as most ERDF funding dried up along with what was left of the Growth Accelerator Leadership and Management funds. So, while we’re waiting to hear the full details of the new Growth Accelerator scheme along with what the latest raft of ERDF projects will bring us, there’s no better time to look back and ask the question as to whether public funding drives or supports innovation. Please note, in this blog we’re not covering the excellent work of InnovateUK – I’ll save that for another time!

The major challenge we have here is correctly defining innovation. Many projects have existed to supposedly support innovation, but the same old problem exists – innovation is about a lot more than inventing something. In fact, just inventing something isn’t innovation at all, unless you start to draw commercial benefit from it. So let’s start by setting some parameters – Innovation is about gaining benefit by doing something different. This can include products, services, processes, markets, marketing and the way you structure and manage your organisation. Simple enough, surely?!

Sounds it, but to draw the optimal benefit from innovation, you’ve got to understand the structure and rules. Which is precisely why the previous raft of funded innovation support projects are extremely unlikely to present the Return on Investment (RoI) that the government desire. We’re writing this as someone who’s sat both side of the fence, and on it. We’ve received funding as an SME, brokered a few million’s worth of innovation funding for clients, and worked for government based bodies granting funding.

When we performed our recent Get Innovation study for Lancashire County Council, one of our major findings reinforced another major point – the majority of ERDF and a percentage of Growth Accelerator projects seem to be drawn down by small and new-start companies seeking to make a product or market breakthrough.

While this is essential to the companies themselves, sadly it will never present the RoI that the government and EU desire and require. Why? The rules of innovation dictate that the majority of small and new start companies are unable to make the investment and take the risk in a wide portfolio of innovation projects. Those who seek evolutionary change will not make major leaps (they’re not yet “high growth”) while those seeking revolutionary change are highly likely to fail by the known percentage success factors linked with this type of activity.

If, however, larger and more stable companies were undertaking this activity, their attitude to investment and risk are likely to be more generous, their innovation portfolio is likely to be greater. Therefore the chance of success in evolutionary and revolutionary projects is vastly increased, which is where businesses grow, jobs are created, and GVA increases.

Our conclusion is that in order to achieve a high return on investment against the public purse, funded innovation projects must start to present solid services and find ways to attract the non-micro and more established companies. Every time the public purse is used, the situation should be addressed in the way an investor would address a project, asking what the real return on investment is likely to be, what the percentage chance of success is, and should the project therefore be funded.

Start-ups and small companies do need funding – but let’s not fall into the age old trap of calling everything “innovation”. Let’s develop the right funding streams for the right projects – if the new funds are intended to really help high growth companies achieve their potential, we need to develop innovation services appropriate to these organisations. Only then will these companies take innovation and public funded projects seriously, and realise the growth through innovation is actually much easier than growth through blood, sweat and tears.