Skills and Innovation: Research Reflections and an Initiative

1. Skills and Innovation:Research Reflections and an Initiative Professor Bruce Tether 17th November 2008

2. Overview • Part 1 – Review of research on the Relationship between Skills and Innovation • Part 2 – ”Design London” – A Multidisciplinary Initiative

3. Part 1: Literature Review - Questions Addressed • How does Innovation Impact on the Demand for Skills? • How does the Supply of Skills Impact on Innovation? • What is the nature of the two-way relationshipbetween Skills & Innovation? • What are the Policy Considerations? • What are the Research Gaps?

4. Context: UK Government - Five Drivers of Productivity Innovation Productivity(i.e., Value of Output per hour Worked) Skills Enterprise Competition Investment

5. Innovation & the Demand for Skills • Different types of Innovation …… have Different Implications for Skills … • Process Innovation (through ‘Technical Change’) Generally reduces jobs and skill requirements as tasks become automated and simpler (& more amenable to relocation). • Technical Change also interacts with Tradewith lower skilled jobs move to the “Developing World”e.g., Dyson Appliances: Production to Malaysia, R&D etc still in UK

6. Innovation & the Demand for Skills • Optimisation of new technologies (such as new information technologies) typically requires Organisational Change • e.g., impact of computing played out through technological and organisational change (resolution of the Solow Paradox) • “Skill Biased Technical and Organisational Change” • in advanced open economies interactions between technical change, trade, organisational change and demand for skills has favoured those with higher and more adaptable skills, and disfavoured those with low, narrow and rigid skills

7. Innovation & the Demand for Skills • Product Innovationtypically creates jobs and requires higher skills, but the nature of these skills relates to type of industry, e.g. … • Science Based Industries(e.g., Pharmaceuticals & Biotech).Key skills are ‘upstream elite’ Research Scientists in R&D. • Engineering Product Based Industries(e.g., Machinery) Key skills are Design and Engineering Problem Solving Skillsincluding strong Technical Skills amongst the Workforce • Mass Market Industries(e.g., Food & Drink).Combination of ‘Scientific Management’ and Marketing is key. • Consumer Services(e.g., Hotel and Leisure Services).Key skills are relational - Service Management, Soft Skills & ‘Emotional Labour’

8. Innovation & the Demand for Skills • Growth of Services including Service Innovation Strategies in manufacturing is associated with Job Polarisationi.e., jobs requiring high and low level skills: McJobs and MacJobs • Innovation in Servicesis typically less dependent on R&D & elite skills in science and engineering – More dependent on general workforce, organisational change & supply chain co-operations. • Greater demand Relational Skills, incl. ‘Emotional Labour’e.g., Care = Organisation + Physical Labour + Emotional LabourSoft Skills: communications, customer handling, team-working, problem solving, etc. (Qualifications in these are more difficult)

9. Supply of Skills & Innovation • Empirical Evidence shows Lack of Skilled Labour is an Important (but not the only) Barrier to Innovation • Including Different Types of Skills – workforce skills, marketing & sales skills, managerial skills • And Different Levels of Skill – basic skills, technical and commercial skills, university graduates • But also a Lack of Motivation to engage with innovation • Overall, at firm-level, innovation performance is strongly associated with higher level skills(including both S&T and non-S&T graduates)

10. Supply of Skills & Innovation • Supply of Different Types of Skills favours Different Types or Modes of Innovation ... for example ... • 1. Innovation based on Small Elitese.g., ‘Science Push’ model of innovation based on small scientific & technological elites (in R&D, etc.). Pharm. is the classic example. Also, specialist manufacturing (e.g., Formula 1) and KIBS (e.g., consulting). UK has tended to do well in these industries. • 2. Innovation through ‘Scientific Management’e.g., US style mass production – functional division of labour.& more recent Japanese approaches to managing innovationBased on engineers with broad not highly specific knowledge basesExperience gained in production enhances continuous improvement& interlinks between management and workforce. UK poor at this.

11. Supply of Skills & Innovation • 3. Workforce Skills and Distributed (or ‘Open’) InnovationJapanese / German approaches encourage workforce participationSpecific skills built on strong education / vocational training systemse.g., superior ability of German textile workers with written instructions enables greater variety, small batch production, & high value added. c.f. UK workers: demonstrations  high volumes  compete on price. • Impacts of Weak Managerial & Workforce Skills ... • 1. Firms tend to invest late in technologiesLeads to competition on cost, not quality. • 2. Make unattractive partners for “Open Innovation” • 3. Firms can get trapped in a low skill equilibrium / a.k.a. the low product specification trap ...

12. Interaction: Innovation & Skills Low Skill Equilibrium / Low Product Specification Trap Low Production Skills Firms Supply of Low Specification Products (for Domestic Consumption) + + Weak Management Skills Firms Invest in Established (i.e., Mature) Technologies Competition on Price & Costs + + Demand for Low Specification Products Firms have Little Demand for Higher Skills Low Supply of Higher Skills

13. Systemic Interactions: Innovation & Skills Supply of Science & Technology(& skilled S&T personnel) Management Skills Workforce Skills INNOVATIONPERFORMANCE Quality of CompetitionDomestic and International Quality of DemandIntermediate & Final

14. Policy Considerations • Need to Improve Workforce Skills, from the “Bottom Up”Workers need to engage with and be adaptable to innovationAlso crucial is the ability to retrain in event of redundancy(UK has a high rate of inactivity amongst unskilled working age men) • Education & Training for Generic, Adaptable SkillsBeware the Qualifications Trap of excessive early specialisationUnderstanding theory raises the ability to learn and adaptVocational training should incorporate theory (not be wholly practical) • Combination of on-the-job and off-the-job / college base training.Training should not be controlled by Employers (short-termist) • Also Need to Improve Management SkillsManagement plays crucial role in co-ordinating innovationImportant role in raising the quality of intermediate demand

15. Policy Considerations • Innovation is increasingly “Open” or DistributedWithin Firms – growing importance of cross functional teams Between Firms – less likely that firms can innovate alone, …… more likely that they need to collaborate for innovation • Do managers know with whom and how to collaborate for innovation? • Increasing importance of social or relational capital alongside ‘hard scientific forms of knowledge’ • Consider the Orientation of the Science BaseUnder-utilisation of SB reflects weakness in industry (Lambert review)UK and European economies increasingly dominated by services – but arguably low relevance of much ‘hard science’ to serviceIBM’s ‘Services Science’ initiative is a call to arms

16. Part 2: Design London: An Educational Innovation Was established following the Cox Review We focus on Recombinant Innovation Our Mission is ... …to broaden the understanding and skills of tomorrow’s business leaders, creative specialists, engineers and technologists The challenge [is] … get business people, engineers, technologists and designers to understand one another Cox Review: Creativity in Business

17. Part 3: Design London – A Triangle for Innovation The Royal College of Art (RCA) Desirability Technical Feasibility Commercial Viability Imperial CollegeFaculty of Engineering Imperial CollegeBusiness School

18. Part 3: Design London – Four Pillars Research the role of design methods, tools and practices on business value creation Deliver interdisciplinary teaching to post-graduate students and industry Incubate new ventures and talent to demonstrate the power of the new model Pioneer technologies to enable high performance innovation