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Birmingham Economic Review 2018: Expert Comment - Professor Simon Collinson

City-REDI, University of Birmingham

This blog post has been produced for the Greater Birmingham Chambers of Commerce to provide insight on the findings of the Birmingham Economic Review. The Birmingham Economic Review 2018 is produced by the University of Birmingham’s City-REDI and the Greater Birmingham Chambers of Commerce, with contributions from the West Midlands Growth Company. It is an in-depth exploration of the economy of England’s second city and is a high quality resource for organisations seeking to understand Birmingham to inform research, policy or investment decisions. This post is featured in the full report and report summary here.

Innovation is an essential – perhaps the essential – driver of firm-level competitiveness and regional economic growth.

Firms succeed or fail on the basis of their ability to (1) continuously create new products and services that customers are willing to pay for, and (2) develop processes for delivering these products and services more cost-effectively. Both underpin improvements in productivity and GVA levels.

But firms do not innovate in isolation. They rely on regional, national and/or international networks of partner organisations, including suppliers, contractors, universities and consultancies that provide components, technology, skills, knowledge and expertise as an input into the innovation process.

For these reasons, developing a strong regional system of innovation should be at the heart of any economic growth strategy. More so, because the benefits are realised not just by firms but more widely, through the creation of higher-value and higher-paid employment opportunities and by multiplier effects which benefit others in the region. Firms, universities and regional policymakers all have a key role to play.

Firms need to invest. Innovation is driven by firm-level investment in skills, new equipment and new processes. Current political and economic uncertainties are constraining this investment at a time when business leaders need to aggressively develop new competitive advantages. They need to be agile and adaptable to changes in the cost base and the UK domestic market and to develop export capabilities to reduce dependence on this market. Innovation underpins all of these strategic opportunities and a confident, proactive approach to competitive markets means investment.

General discussions about innovation tend to focus on R&D and technology-related developments. We need to remember that most innovation is driven by people having the capability and incentives to continually improve processes, products and services. ‘Non-technological’ innovation is responsible for twice as much firm-level innovation as technology-related innovation according to the UK Innovation Survey. ‘New business practices’, ‘new methods of organising work responsibilities’ and ‘changes to marketing concept or strategies’ top the list of innovation-related activities that make a difference in innovative firms. It is appropriate therefore that this was the focus of the Greater Birmingham Chambers of Commerce ‘Invest to Grow’ and ‘Growth Through People’ campaigns.

Universities need to connect. The role of universities is emphasised in the Government’s Industrial Strategy and related reports, including the Science and Innovation Audit’s (SIAs). The regional SIA highlights Warwick University (including Warwick Manufacturing Group), JLR, the University of Birmingham and the Manufacturing Technology Centre (MTC) as ‘nationally and internationally significant science and innovation assets’. Both universities were recently ranked in Europe’s 100 most innovative universities by Reuters and account for two-thirds of all Innovate UK funding into the area over the 2010-15 period. 

However, we need better mechanisms for translating good ideas in our universities into successful commercial businesses. We have a number of outstanding science, technology and engineering clusters, including hotspots in life sciences, low-carbon energy, automotive technologies, rail transportation and advanced materials. We need a wider range of innovation pipelines to exploit this scientific creativity, generating new products, services and processes that will improve competitiveness. This will result in more productive, high-value, high-salary jobs, attract more firms and more talent to the region and drive a local growth cycle to benefit everyone.

But we also need better connections between our universities and local businesses to bridge the supply-demand skills gap and support the development of new practices, processes and business models. The region boasts several leading UK business schools which are already working with local firms but a wider range of stronger collaborations, from apprenticeship programmes to export promotion workshops to small-business mentoring is needed.

Regional organisations need to cooperate, coordinate and prioritise support programmes to focus limited resources to reduce the most significant barriers to innovation and build on the region’s distinctive advantages. The challenge for local government, enterprise partnerships and public agencies is to identify the potential future areas of regional competitive advantage, attract new investment from existing firms and attract new firms to the region to complement existing strengths as part of a smart specialisation strategy. This includes a focus on ‘scale-ups’ as well as start-ups, given the high business mortality rate in the region.

The evolving regional skills strategy should match this industry focus. Matching developments in local infrastructure, including transport, housing and digital as well as cultural amenities to attract skilled workers will help improve the attractiveness of the region for retaining existing talent and bringing new capable and creative people to the region. In parallel with this we need to devote resources to promote innovation in the public services to reduce costs and improve the well-being of those dependent on these services.

Professor Simon Collinson
City-REDI. University of Birmingham