Enterprise and Skills Review: report on Phase 1

Innovation

Vision: We want Scotland to be a place where innovation is an intrinsic part of our culture, our society and our economy - where businesses across the country are ambitious and open to collaborations and partnerships with one another, with academia, and with other organisations, and have high levels of innovation and growth as a result.

Guiding principles: Innovation and collaboration are about turning ideas and research into new or improved products, services or business processes. To drive this:

• we need to simplify the innovation landscape and align better our innovation approach to maximise the impact of public sector support for innovation;
• we need to ensure that we have the right range and mix of accessible innovation advice and products, tailored to the right customers and meeting their needs; and
• we need to increase awareness of sources of innovation support and the benefits it can provide for businesses across Scotland. This should include access to academic expertise and facilities across Scotland.

Current strengths and successes: Scotland has a world-wide reputation for invention and innovation. Evidence shows that:

• Scotland's world-class innovation assets include a highly skilled and qualified workforce, a strong HE sector and research base, and a number of internationally innovative companies across a variety of sectors;
• our businesses have been improving their innovation performance in recent years through increased investment and increased innovation activity;
• Scotland does well internationally on the enablers of innovation, ranking second among EU countries in terms of university graduates as a share of the adult population, and fifth in the OECD in terms of expenditure on higher education R&D.

Our public sector plays a number of important roles in supporting innovation by:

• acting as a catalyst through procurement and support for research and innovation;
• contributing to the creation and development of innovative firms and assisting existing businesses to access finance and assimilate innovative products and ways of working;
• helping to shape markets and create the best environment for innovation; and
• driving collaboration between business and academia.

Scottish Enterprise, which provides the bulk of our business-facing innovation support, has improved its approach in order to widen and deepen business innovation activity. A review of innovation support over the past decade shows that it has:

• significantly increased the reach of its innovation support and engaged with an additional 2000 new innovation companies;
• increased the economic return on its innovation investment to £15 for every £1; and
• increased export activity, with the innovative firms it works with now more than three times more likely to export.

Challenges and opportunities: Nonetheless, Scotland remains a mid-ranking nation when it comes to innovation performance overall. Significant gaps remain between our performance and the best-performing countries in the OECD. Evidence shows that:

• although Scotland's innovative SMEs are amongst the most likely in the EU to collaborate with others on innovative activities, Scotland has a notably lower share of SMEs innovating in-house;
• although more businesses are innovating, Scotland still lags behind the leading regions and countries in Europe with a lower share of 'innovation active' businesses overall. Although Scotland's larger businesses are more likely to be innovative than smaller or medium-sized businesses, innovation rates for both medium and large-sized businesses still substantially lag behind the EU average;
• Scotland lags behind other parts of Europe in the economic outcomes associated with innovation, e.g. in terms of employment and of its export share in knowledge-intensive manufacturing and services; and
• basic digital skills issues persist both for businesses and individuals, alongside gender segregation in educational choices.

In helping to build and develop an environment that supports innovation we need to address several challenges highlighted in the Call for Evidence:

• simplify and streamline funding and interventions and reduce duplication in our support for innovation, while ensuring it is agile, fast and flexible in responding to businesses' needs;
• improve leadership, digital and other skills to drive innovation and enterprise;
• maximise the impact of university research to increase collaboration with businesses in Scotland and internationally in order to better drive improved economic output;
• make better use of our existing network of innovation centres and ensure the wider public support landscape enables growth; and
• maximise the impact of our world-renowned research base.

Action: In order to drive up innovation across Scotland:

• We will review, streamline and simplify the innovation support ecosystem, connecting programmes, funding and delivery mechanisms. We will ensure that more businesses in Scotland increase their level of innovation to realise their major growth ambitions by implementing an innovation action plan that will be published by end of November.