Scotland: Towards the Knowledge Economy

CHAPTER 1: THE TECHNOLOGY VENTURES INITIATIVE

The taskforce was asked to offer a revised framework for the commercialisation of research, building on the existing work within universities coupled with a refocusing of the Technology Ventures Initiative (TVI) which had been allocated an additional £11m of Government funding.

1.1 This Chapter:

briefly describes some of the taskforce's background think-ing on the economic rationale for commercialisation and the significance of other new and existing policy initiatives;

summarises the views of the taskforce on the work going on within higher education institutions and achievements to date, including those of the TVI;

following the report on TVI by the consultants Segal, Quince, Wickstead (SQW), gives the taskforce's views on a structure for a refocused TVI as part of wider commer-cialisation activity; and

proposes that the £11 million allocated to Scottish Enterprise at the time of the Comprehensive Spending Review (CSR) for commer-cialisation purposes should be used for pre-seed funding of projects in HEIs and research institutes which will support the work of the SE Cluster Teams.

BACKGROUND

1.2 The Competitiveness White Paper has identified that the overall goal of industrial policy is to raise the sustainable rate of growth. The taskforce considered that goal as appropriate for Scotland as well as the UK as a whole; Scotland's long run rate of growth is below that of the UK. (Annex A provides a more detailed appreciation of Scotland's competitive position.)

1.3 The taskforce also took the view that, given Scotland's static population and relatively high labour force participation rate, a large part of the burden of delivering this objective must fall on technology, innovation and productivity improvements. They noted that the recent guidance offered by Ministers prior to the finalisation of SE's new strategy made this point. Since capital is mobile, technology spreads quickly and goods can be made in low cost countries and shipped to developed countries such as our own. Scotland therefore needs to exploit capabilities which are hard to imitate. This in turn explains the renewed policy emphasis on knowledge, skills and creativity and the pressing need to maximise the transfer of knowledge from the science and engineering base into the market place.

1.4 The Competitiveness White Paper also laid out a wide range of actions and initiatives under the linked themes of strengthening British capabilities, encouraging people to collaborate to compete and promoting competition. Many of these initiatives will run concurrently in Scotland as well as in other parts of the UK. In terms of the activities of the taskforce the most immediate and relevant of these initiatives concerned building and exploiting the science base, encouraging company R & D, and business-academic collaboration. These and other initiatives are listed briefly in Annex B. In view of the weight and coherence of these actions the taskforce took the view that no wholly new initiative was needed to increase the pace of commercialisation in Scotland. The need was instead for a process of evolution rather than revolution, building on progress to date. However the Technology Ventures Initiative and SE's Strategy were seen as important areas where the relationship to the work of the taskforce needed to be clearly established.

1.5 Finally, the taskforce acknowledged that the development of the knowledge economy would require many other actions to be successful. For example, the Competitive-ness White Paper recognised the crucial importance of building the broader knowledge and skills base to enhance the economy's

I was delighted to participate in Lord Macdonald's taskforce alongside Crawford Beveridge and Ian Graham-Bryce. Higher education institutions are fundamental to the knowledge-led economic growth that is essential for Scotland's future prosperity. Lord Macdonald's invitation is explicit acknowl-edgement of the vital role played by our funding policies in bringing about change through facilitating productive collaboration, both among HEIs and industry.

PROFESSOR JOHN SIZER CBE Chief Executive SHEFC

capacity to achieve higher levels of economic performance. Much of the Government's effort in this area is directed at improving the motivation of individuals and companies to invest in learning and skills; improving the responsiveness of suppliers of learning and skills; and providing the underpinning framework in support of those objectives. Specific measures include: the University for Industry; Individual Learning Accounts; the National Grid for Learning; and significant investment in increased numbers in higher and further education. The Scottish lifelong learning programme has been set out in "Opportunity Scotland"4, and followed up in "The Scottish Skills Strategy"5. While this agenda and other issues, such as making markets more competitive, are of critical importance to developing the knowledge economy, they were seen as outside the specific remit of the taskforce.

SCOTTISH INITIATIVES

1.6 The taskforce was aware that it was not starting with a blank sheet of paper. Higher education institutions and research institutes have achieved a great deal in bringing their scientific discoveries to market. It is no exaggeration to say that the situation in the academic sector has been transformed and that there has been a step change in the quantity and quality of commercialisation activity within HEIs and research institutes. The joint SE/Royal Society of Edinburgh (RSE) Commercia-lisation Enquiry in 1996 and the work of SE's Technology Ventures team over the last few years have contributed to this change. Within the overall framework of commercialisation of discoveries, HEIs are working on a wide range of fronts to facilitate the transfer of knowledge and skills from the science base to industry and commerce. There is evidence to suggest that, on some performance measures, some Scottish HEIs compare very favourably with their counterparts in the United States. Some practitioners have argued that the HE sector has progressed to the stage where the process should now be led by the stakeholders through a bottom-up approach. That is to say, an approach in which many of the practical problems standing in the way of increased exploitation of science are solved by the practitioners themselves, acting on a collaborative basis.

1.7 The taskforce also considered that Scottish Enterprise and the network of Local Enterprise Companies (LECs) have contri-buted to this achievement. It was aware that SE were reviewing TVI and consulting stakeholders in preparation for phase 2 of the strategy. The taskforce clearly wished to make an input into this process. Much of the discussion of SE's input to commercialisation has tended to focus on the role of the TVI team, where it is acknowledged that their efforts in raising awareness and the profile of commercialisation have contri-buted significantly to the current position. But it is also clear that a number of the LECs work consistently with HEIs and research institutes in their local area to the benefit both of the institutions and the local economy. The taskforce was convinced that network support is necessary and should continue.

1.8 The key issue which the taskforce believed has not been receiving full attention concerns the ability of the Scottish company base to absorb the fruits of scientific discovery. They considered that the potential here has neither been fully explored nor exploited. The central objective of ensuring that scientific discoveries are exploit-ed in Scotland requires more interaction between the knowledge base and existing companies. (The key role played by CONNECT in encouraging investment in new and very young companies is acknowledged). For example, the taskforce noted that there is little sign of the sort of co-location of activities around campuses which characterises MIT and Stanford, and which facilitates an active market in commer-cialisation. The taskforce also noted the view of many, if not most, of those actively involved in commercialisation, that there is a role for the public sector in stimulating the Scottish company base and facilitating local transfer of knowledge and technology.

1.9 In the light of this analysis, the taskforce drew two broad conclusions. First, there was a continuing need for an institutional framework within which collaborative activity involving and led by participants in the commercialisation process can take place. Second, consideration should be given to re-balancing the efforts of SE much more towards the company base as the users of new technology and less towards the HEIs and research institutes as the producers of science and technology.

PROPOSALS ON FUTURE STRUCTURE

1.10 A report on the first stage of Technology Ventures was commissioned by SE from the consultants Segal, Quince & Wickstead. It argues for a return to the original concept of a pluralistic TVI, recognising the contributions of the various stakeholders and drawing these together under an umbrella initiative which can undertake some tasks that stakeholders would be unlikely to tackle on their own and which could "enhance, co-ordinate, monitor and publicise the actions which individual stakeholders intend or are likely to pursue independently". Involve-ment and collabo-ration would be the key themes of

refocused activity with a vision of the broad direction of the process being shared by all. The taskforce was attracted to this approach and believed that the structure proposed below would provide a framework within which these goals can be achieved.

MANAGEMENT ISSUES

1.11 The task force was aware of the significant contribution of the Leadership Group in taking forward the first phase of TVI. After the conclusions of the SQW Report and taking account of the discussion with stakeholders organised by SE, the taskforce was convinced of the need for some higher level group to provide strategic guidance, promote the vision, and set the broad direction within which a programme of coll-aborative activities will be driven forward. In their view this will require the evolution of the present Leadership Group into a broader "forum". As well as defining the role of the group in the above terms it might meet more frequently than hitherto. Recognising the pluralistic nature of commercialisation activity, the taskforce also believed that the group should include represent-atives of stakeholders (industry, finance, HEIs, research institutes and the public sector) who are actively involved in the commercialisation process. The membership needs to include people sufficiently senior to speak on behalf of their organisations along with some who are close enough on a day-to-day basis to commercialisation practitioners to have a practical grasp of the barriers and constraints which need to be overcome. An example of the latter might be a Vice-Principal in charge of commercialisation or a leading venture capitalist.

PROGRAMME DEVELOPMENT GROUPS (PDGs)

1.12 Given the complex range of issues likely to be encountered as the commercialisation process devel-ops and grows, it would be unrealistic and unreasonable to expect that "forum" members, individually or collectively could devote the time, or possess the expertise, to address all of the issues in depth. SQW suggest that issues such as barriers and constraints be addressed by PDGs drawn from relevant interests such as venture capitalists, lawyers, academics and the enterprise network as appropriate; discu-ssions would be focussed on the practical problem at hand; individual PDGs would exist only for the purposes of resolving particular issues and would form and disband as the needs demanded. This would help avoid any tendency to proliferating bureaucracy.

1.13 The role of the PDGs is seen as being the analysis of problems and making recommendations for solutions. To enhance their credibility and effectiveness, each PDG should be led by the most relevant of the stakeholders in the process and by an individual directly involved in commer-cialisation. For example, the financing of commercialisation projects and the involvement of venture capitalists is one issue widely recognised as needing to be addressed. A Group looking at this issue might be led by someone from CONNECT or by a representative of one of the major venture capital orga-nisations.

1.14 The taskforce considered that if the principle of PDGs as outlined above is acceptable to all parties, there would be no requirement for the subjects to be identified now; this would be decided by the evolving Leadership Group or "forum" and the stakeholders in the light of circumstances at the time.

EXECUTIVE SUPPORT UNIT

1.15 The taskforce noted the wide-spread desire to keep the bureaucracy of the process to a minimum. Nonetheless, there is a clear requirement for secretarial support to the forum or management group and the PDGs and a commitment to ensuring comprehensive and accurate communication between all of the parties involved in the overall process. Given their involvement to date, the taskforce was inclined to see a role for SE's TVI Team here.

1.16 With all these changes in place the taskforce believed that the commercialisation process would be greatly enhanced.

PROPOSALS ON ROLES AND RESPONSIBILITIES OF ORGANISATIONS

STAKEHOLDER INVOLVEMENT

1.17 The proposals outlined are aimed at providing a flexible structure within which the TVI can continue to contribute to the overall process of commercialisation but which will be driven more by practitioners. For this to operate effectively, it is important that practitioners bring to the activity a recognition and acceptance of each other's strengths and that the contribution of each draws on these strengths. This would reflect the pluralistic nature of the original proposals arising from the Commercialisation Enquiry and would be in line with SQW's suggestions.

GOVERNMENT

1.18 Annex B demon-strates the sub-stantial and wide-ranging activities being promoted by Government. The taskforce noted the weight and coherence of these actions. It recognised that there were bound to be differing views about relative priorities, and arguments that more funding for particular activities could make a significant difference. The question of resources is dealt with below.

HIGHER EDUCATION SECTOR

1.19 In the HEIs overall commercialisation activity has increased dramatically and a variety of different approaches are being pursued. Future developments will be significantly affected by the outcome of the University Challenge and Science Enterprise Challenge competi-tions. Much too will depend on the outcome of the proposals on internal incentives within HEIs for commercialisation. The taskforce was inclined to the view that it would be desirable to await outcomes here before deciding what, if any, further activity needs to be generated. They also noted the view strongly held within parts of the academic sector, that the HEIs can be left to take internal activity forward themselves under the umbrella of a broader TVI but with help on practical issues as they arise and assistance in developing the market, e.g. through CONNECT and the proposed PDGs.

ENTERPRISE NETWORK

1.20 If Scotland is to gain economically, it needs to link the opportunities available from the science base to their exploitation by Scottish companies. This is an activity which has to be stimulated if Scotland is to gain. Looking to the future, the taskforce thought it likely that some of the related promotion of science and technology among companies would fall to SE's cluster teams. (Its conclusions on how to link universities to the cluster teams are dealt with in Chapter 3.) In the meantime, however, (and recognising that cluster activity is only beginning to get underway), they considered that something like the existing, dedicated SE TVI team could have a role in co-ordinating network activity and liaising with cluster teams and LECs. They also suggested that there could be advantage in SE mapping those areas of world class research in Scotland's HEIs and research institutes on to the technologies and markets which Scottish companies are best placed to exploit.

RESOURCES

1.21 The taskforce was fully aware of the significantly increased resources being made available by the Government to support technology transfer and commercialisation through initia-tives such as University Challenge, Science Enterprise Challenge, Teaching Company Scheme and Faraday Partnerships. It also noted the 1999 Budget announcement of further increases in funding for very small and start-up businesses in the technology sector and the commitment of the Enterprise Network to maintaining its support of commercialisation activities. The latter will amount to some £10 million in 1999-2000, covering the work of the existing TVI and activity across the LECs. taskforce members nevertheless thought that further support to a particular form of pre-commercialisation activity in HEIs and research institutes was necessary if the full potential of the science base was to be exploited.

1.22 The report by SQW and comm-ents from many other practitioners (see Chapter 2) have drawn attention to a pre-seed funding gap which restricts the flow of technology from laboratories to the market place. The taskforce accepted that venture capitalists and other providers of development funds cannot sensibly or realistically commit funds to projects or potential businesses at a stage where these merely represent a concept on view. Accordingly, the taskforce considered that this gap needs to be filled, and that, while University Challenge does this to some extent, there are many areas of the science base in Scotland which will not have access to this support. The taskforce therefore recommends that the additional provision of £11 million over 3 years allocated to Scottish Enterprise in the Comprehensive Spending Review (CSR) should be drawn on to support proof of concept stage activity and to complement University Chall-enge. The taskforce was advised that up to £2 million is likely to be available for this in 1999-2000, with a further £3 million in 2000-2001 and the remaining £6 million in 2001-2002.

1.23 From the eco-nomic develop-ment perspective the key need is to link the work of SE's cluster teams to the potential technology emerging from HEIs and research institutes (See Chapter 3). This was part of the taskforce remit, and in its view pointed clearly to a set of contracts between SE and individual research bodies which would link proof of concept funding to those areas of scientific activity most relevant to the development of particular clusters. From the higher education perspective it acknowledged that this might seem overly restrictive but the number of clusters is set to grow and those already identified match particular Scottish research strengths in life sciences, electrical engineering and food/nutrition. Moreover, the clusters teams will have a detailed knowledge of market opportunity and capacity in their sectors which, when matched with HEI research, will help point the way to those projects with a higher probability of success.

1.24 The taskforce took the view that it would be important to leave HEIs and research institutes with a high degree of discretion over exactly how funds may be utilised and on which particular projects. It of course recognised that SE have a duty towards proper stewardship of their funds but also that innovation and exploitation is best encouraged through a spirit of unfettered flexibility within agreed boundaries and timetables. There will, inevitably, be tension on some occasions over the most appropriate exploitation routes for individual projects between SE's wish to have new ideas exploited for the maximum benefit of the Scottish economy and an HEI's wish to gain maximum return for itself. These tensions can best be resolved through discussion and negotiation at the time rather than by prescription in advance. In the event that development in Scotland does not seem feasible on any realistic scale or timetable, the taskforce considered that the individual HEI or research institute should be free to exploit the technology outwith Scotland.