This paper summarises recent data on Scotland's innovation performance and how this compares to other countries, using data from the UK Innovation Survey and the European Union’s Community Innovation Survey. The paper assesses the reasons for Scotland's absolute and relative improvement in innovation activity by examining the performance of individual types of innovation. The paper concludes that although Scotland's headline innovation performance has improved, this has been driven more by improved performance of 'organisational innovation' than by companies introducing new products, services or processes. This implications of this for company performance are unclear

Fraser of Allander Institute

Turnbull, Jennifer

Richmond, Kenny

University of Strathclyde Institutional Repository

Turnbull, Jennifer and Richmond, Kenny (2017) Scotland's innovation performance : a review of recent evidence. Fraser of Allander Economic Commentary, 41 (4). pp. 58-67. ISSN 2046-5378 , This version is available at https://strathprints.strath.ac.uk/62583/Strathprints is  designed  to  allow  users  to  access  the  research  output  of  the  University  of Strathclyde. Unless otherwise explicitly stated on the manuscript, Copyright © and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Please check the manuscript for details of any other licences that may have been applied. You may  not  engage  in  further  distribution  of  the  material  for  any  profitmaking  activities  or  any commercial gain. You may freely distribute both the url (https://strathprints.strath.ac.uk/) and the content of this paper for research or private study, educational, or not-for-profit purposes without prior permission or charge. Any correspondence concerning this service should be sent to the Strathprints administrator: strathprints@strath.ac.ukThe Strathprints institutional repository (https://strathprints.strath.ac.uk) is a digital archive of University of Strathclyde research outputs. It has been developed to disseminate open access research outputs, expose data about those outputs, and enable the management and persistent access to Strathclyde's intellectual output.6FRWODQGöV,QQRYDWLRQ3HUIRUPDQFHDUHYLHZRIUHFHQWevidence Jennifer Turnbull & Kenny Richmond Scottish Enterprise8 1. Introduction7KLVSDSHUVXPPDULVHVUHFHQWGDWDRQ6FRWODQGöVLQQRYDWLRQSHUIRUPDQFHDQGKRZWKLVcompares to other countries, using data from the UK Innovation Survey and the European 8QLRQöV&RPPXQLW\,QQRYDWLRQ6XUYH\ 7KHSDSHUDVVHVVHVWKHUHDVRQVIRU6FRWODQGöVDEVROXWHDQGUHODWLYHLPSURYHPHQWLQinnovation activity by examining the performance of individual types of innovation. The paper FRQFOXGHVWKDWDOWKRXJK6FRWODQGöVKHDGOLQHLQQRYDWLRQSHUIRUPDQFHKDVLPSURYHGWKLVKDVEHHQGULYHQPRUHE\LPSURYHGSHUIRUPDQFHRIõRUJDQLVDWLRQDOLQQRYDWLRQöWKDQE\FRPSDQLHVintroducing new products, services or processes. This implications of this for company performance are unclear.  2. Why is innovation important?The importance of innovation in driving economic growth is well established.  Innovation is a critical factor for determining productivity growth, for example new and improved products/services can boost business sales and increase value add, and new processes or better organisation can increase efficiency9.    Research shows that innovative businesses grow twice as fast, both in employment and sales, as bXVLQHVVHVWKDWGRQöWLQQRYDWH10.   7KHSURSRUWLRQRIEXVLQHVVHVWKDWDUHLQQRYDWLQJLVDNH\LQGLFDWRULQWKHõ7KH6FRWODQG&DQ'Römeasurement framework11.  8 Scottish Enterprise is Scotland's main economic development agency. 9 Productivity Handbook, ONS 10 Business Growth and Innovation, Nesta 2009 11 http://www.cando.scot/indicators/innovating-business/  Economic Commentary, December 2017   3. Innovation data sources7KLVSDSHUFRQVLGHUVWKHPHDVXUHRIõLQQRYDWLRQDFWLYHöDQGperformance in 2012-14 compared to 2010-2012. A business is defined as being innovation active if it is engaged in any of the following activities12:   1. Introduction of a new or significantly improved product (good or service) or process;2. Engagement in innovation projects not yet complete or abandoned;3. New and significantly improved forms of organisation, business structures or practices andmarketing concepts or strategiesA key source of internationally comparable data on business innovation activity is the Community Innovation Survey (CIS) that provides information for EU member states and a number of ESS member countries13.  The CIS is a harmonised survey of innovation activity in businesses with 10 or more employees14, designed to provide information on the innovativeness RI FRXQWULHVö EXVLQHVVHV RQ GLIIHUHQW W\SHV RI LQQRYDWLRQ DQG RQ YDULRXV DVSHFWV RI WKHdevelopment of an innovation, such as objectives, sources of information, public funding and innovation expenditures.  The CIS provides statistics broken down by country, type of innovation, sector and business size. The UK Innovation Survey is the source of CIS UK data15.  The UK survey includes data for Scotland which can be used to compare innovation performance relative to other UK regions.  Given the contribution that businesses with 10 or more employees make to the Scottish economy, they account for around 73% of total employment and 84% of total turnover, the VXUYH\SURYLGHVLPSRUWDQWHYLGHQFHRQ6FRWODQGöVLQQRYDWLRQSHUIRUPDQFH 4. ScotlDQGöV,QQRYDWLRQ3HUIRUPDQFH6FRWODQGöV LQQRYDWLRQ SHUIRUPDQFH LQ WKH VXUYH\ SHULRG -2014 improved significantly compared to the 2010-2012. In 2010-2012 the proportion of innovation active businesses was 47% with Scotland ranked 19th.  This places Scotland in the third quartile of comparator European countries.  In 2012-2014, the proportion increased to 56%, with Scotland ranked in 9th equal place (with France) at the top of the second quartile of comparator countries. 12 This is the EU wide definition of innovation active adopted by Eurostat. 13 The CIS dataset is included in the Science and Technology Section of the Eurostat Database.  See Eurostat description of the dataset 14 So excludes businesses with less than 10 employees 15 UK Innovation Survey covering the period 2012 to 2014, BIS  Fraser of Allander InstituteFigure 1: Innovation Active, % of Businesses 2012-2014 ________________________________________________________________________________ ________________________________________________________________________________ Compared to other countries, Scotland had the fourth largest percentage point increase in the proportion of innovation active businesses between the 2010-12 and 2012-14 surveys. Figure 2: Growth in % of Innovation Active Businesses 2010-12 to 2012-14 ________________________________________________________________________________ ________________________________________________________________________________ 01020304050607080SwitzerlandGermanyLuxembourgBelgiumIrelandUnited KingdomAustriaNorwayFranceScotlandNetherlandsFinlandSwedenPortugalTurkeyGreeceDenmarkItalySloveniaLithuaniaCzech RepublicCyprusMaltaCroatiaSpainSlovakiaEstoniaBulgariaHungaryLatviaPolandRomaniaTop Quartile Second Quartile Third Quartile Bottom QuartileSources: Scottish Government, Eurostat-25-20-15-10-5051015NorwayLithuaniaUnited KingdomScotlandBelgiumAustriaNetherlandsFranceSpainTurkeyFinlandIrelandCroatiaGermanyCyprusPortugalSloveniaLuxembourgBulgariaGreeceDenmarkSwedenCzech RepublicPolandSlovakiaLatviaHungaryItalyRomaniaMaltaEstoniaPercentage point changeSources: Scottish Government, EurostatEconomic Commentary, December 2017   5. :KDW W\SHV RI LQQRYDWLRQ DUH GULYLQJ 6FRWODQGöV LPSURYHG RYHUDOOinnovation performance?In practice, businesses are often engaged in one or more of the activities listed in section 3.  The data show that most innovation activity by Scottish businesses is product and/or process innovation, and organisation and/or marketing innovation. The proportion of businesses in Scotland involved in these activities in 2014 is shown in the table below. 6FRWODQGöV,QQRYDWLRQ$FWLYLW\ Activity % of businesses Innovative Active 56.4  Product and/or process innovation 38.6  Organisation and/or marketing innovation 43.3 A review of more detailed data within these categories helps to highlight specific areas of improvement.  As some businesses engage in a single innovation activity only while others engage in multiple activities, the results for both types of innovators are shown below16:  multiple ó businesses that are involved in a particular type of innovation activity, as well asother types of activity single ó businesses that are involved in just one type of innovation onlyIn the product example below, this shows that 7% of businesses in Scotland are product only innovators (and are not doing any other type of innovation), whereas significant more businesses (25%) undertake product and other types of innovation. 16 see Appendix 1 for an overview of the types of innovation activity  Fraser of Allander InstituteProduct innovation 6FRWODQGöVTXDUWLOHSHUIRUPDQFHLQSURGXFWRQO\LQQRYDWLRQZDVEURDGO\PDLQWDLQHGEHWZHHQ2012 and 2014, falling by only 0.3 percentage points.  This means that overall improvement in product innovation was driven by businesses engaging in product innovation plus other innovation activities, which increased by 4 percentage points. 6FRWODQGöV Product Innovation performance improved between the 2012 and 2014 surveys. In 2014 Scotland ranked 15th out of 32 countries and moved up to the 2nd quartile of comparator countries. Product Innovation Performance 2012 2014 International Rank 18 15 Quartile 3 2 The proportion of Scottish businesses engaging in product innovation only was broadly the same in 2014 as it was in 2012, and in the top quartile of countries. Product Innovation Only 2012 2014 International Rank 4 6 Quartile 1 1 Economic Commentary, December 2017   Process Innovation The proportion of Scottish businesses engaging in process only innovation increased by 3.3 percentage points between 2012 and 2014.  However, overall improvement was driven by the proportion of businesses engaging in process plus other innovation activity, which increased by 7.7 percentage points.  6FRWODQGöV Process Innovation performance improved between the 2012 and 2014 surveys.  In 2014 Scotland ranked 24th out of 32 countries and moved up to third quartile of comparator countries. Process Innovation Performance 2012 2014 International Rank 29 24 Quartile 4 3 The proportion of Scottish businesses engaging in process innovation only increased by 6 places in the ranking of comparator countries. Process Innovation Only Scotland's 2012 2014 International Rank 30 24 Quartile 4 3  Fraser of Allander InstituteOrganisational innovation The proportion of businesses engaging in organisation only innovations increased by 4.2 percentage points between the 2012 and 2014 surveys.  However, the proportion of businesses engaging in organisational plus other innovations increased by 6.8 percentage points. Organisational Innovation shows the most dramatic improvement in Scotland between the  DQG  VXUYH\V  6FRWODQGöV UDQNLQJimproved to 5th place out of 32 countries and moved to the top quartile of comparator countries. Organisational Innovation Performance 2012 2014 International rank 12 5 Quartile 2 1 Scotland maintained its top quartile ranking in the proportion of businesses engaging in organisational innovation only between 2012 and 2014. Organisational Innovation Only 2012 2014 International Rank 1 1 Quartile 1 1 Economic Commentary, December 2017   Marketing innovation The proportion of businesses engaging in marketing only innovation increased by 1.7 percentage points between 2012 and 2014, therefore, most of the overall improvement was due to the 4.3 percentage point increase in businesses engaging in marketing as well as other innovations. Marketing Innovation performance is weak in Scotland, but some improvement was reported between the 2012 and 2014 surveys.  Although still in the bottom quartile of comparator countries LQ6FRWODQGöVUDQNLQJKDGJRQHXSIURPst in 2012 to 25th in 2014. Marketing Innovation Performance 2012 2014 International rank 31 25 Quartile 4 4 6FRWODQGöVUDQNLQJIRUWKHSURSRUWLRQRIPDUNHWLQJonly innovators increased by 3 places between 2012 and 2014, but also remained in the bottom quartile. Marketing Innovation Only 2012 2014 Scotland's Rank 31 28 Quartile 4 4 The data for multiple innovation activities show that Scotland still has relatively poor performance compared to other countries. In Process and Marketing Innovation, and Product Innovation Scotland just makes it into the second quartile of comparator countries while the performance is high for organisational innovation. Overall, to reach the top quartile of comparator countries for overall innovation active performance, Scotland would only need an extra 250 10+ employee businesses to become innovation active.  However, the gap between Scotland and comparator countries engaging in multiple innovation activities is much larger: Multiple Innovators -Innovation Type Number of additional 10+ employee businesses required to reach the top quartile Product Innovation 1,500 Process Innovator 2,700 Marketing Innovators 3,000 Organisational Innovators 0 7KH GDWD RQ 6FRWODQGöV SHUIRUPDQFH E\ W\SH RI LQQRYDWLRQ DFWLYLW\ KHOSV H[SODLQ 6FRWODQGöVLPSURYHGSHUIRUPDQFHIRUWKHRYHUDOOKHDGOLQHLQQRYDWLRQDFWLYHPHDVXUH6FRWODQGöVUDQNLQJhas increased from 19th to 9th by improving or maintaining its ranking performance for all the component types of innovation activity, except for the proportion of companies that are only involved in product innovation. 7KHGDWDWKRXJKDOVRVKRZVWKDW6FRWODQGöVRYHUDOOUHODWLYHO\KLJKLQQRYDWLRQDFWLYLW\UDQNLQJ(9th place) is driven in large part by businesses undertaking organisational innovation only, and that SFRWODQGöVEXVLQHVVHVDUHIDUOHVVOLNHO\WKDQWKRVHLQRWKHUFRXQWULHVWREH  undertaking process or marketing innovation undertaking (or combining) multiple innovation activities7KLVUDLVHVDNH\TXHVWLRQRIZKHWKHU6FRWODQGöVGHSHQGHQFHRQRUJDQLVDWLRnal innovation is a weakness. Further research is planned to assess whether there is a relationship between types of innovation activity and business performance, for example in terms of turnover growth and productivity.  This will also consider whether there are optimal combinations of innovation activity. Conclusions 6FRWODQGöVRYHUDOOSHUIRUPDQFHRI LQQRYDWLRQDFWLYHEXVLQHVV LPSURYHGVLJQLILFDQWO\EHWZHHQ2010-12 and 2012-14, compared to other CIS European countries. This was due to improved performanFHLQHDFKRIWKHPDLQW\SHVRILQQRYDWLRQDFWLYLW\+RZHYHULWLVFOHDUWKDW6FRWODQGöVinnovation performance is driven mainly by organisational innovation rather than by businesses introducing new products, services or processes. And Scottish businesses are less likely to engage in multiple innovation activities than those in other countries. Further research is UHTXLUHG WR DVVHVV ZKHWKHU WKLV LV DQ õLQQRYDWLRQ ZHDNQHVVö FRPSDUHG WR RWKHU FRXQWULHV LQterms of business performance and growth.  Fraser of Allander InstituteEconomic Commentary, December 2017   Appendix A: Types of Innovators Overview Source: Eurostat Metadata

Scotland's innovation performance : a review of recent evidence

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