1. Innovation in the Supply Chain: lessons from the CBI/QinetiQ Innovation Survey Hugh Morgan Williams Chairman, Canford Group Vice Chair, CBI SME Council

2. High revenue Medium revenue Low revenue 010203040506070 % turnover on innovation Overall Main Findings Products and Services Business Models and Processes Equal Focus

3. 010203040506070 % turnover on innovation High revenue Medium revenue Low revenue Smaller Companies Main Findings Products and Services Business Models and Processes Equal Focus

4. Funding for Innovation Funding sources Internal profits Gov’t grants & initiatives Innovation partners Banks 94% 25% 17% Equity Venture capital Other 7% 5% 6% Ease of accessing external finance for innovation Balance = -31% 27% 31%15% Very hard Fairly hard Neutral/ Don’t know Fairly easy Very easy 23% 4% Overall 27%31%15% 12 % 2% 27% 32% Very easy Balance = -39% Smaller companies

5. External Collaboration Most frequent Least often 40% 67% 75% 77% 85% Universities Companies in the supply chain Companies not in the supply chain Consultants Government research institutes Effectiveness of collaboration with external partner -40 -20 0 20 40 60 % Least effective Most effective Future trend companies agree stronger links with academia would boost their competitive advantage 63% 1 2 3 4 5 CBI/QinetiQ Innovation Survey 2005

6. Managing Innovation 20% 80% 60% 40% Monitor Failure Provide Resources Formal Ideas Process Reward Employees Market Assessment Involve Customers /Suppliers All Respondents Smaller Companies Larger Companies Supply Chain Collaborators

7. Government Influence on Business Innovation Corporate governance policy -80-60-40-200%20406080 HelpsHindersNeutral Macroeconomic stability Employment legislation Environmental legislation Health & Safety legislation Business tax Planning policy Procurement practices Transport policy Education policy Intellectual Property policy +58% Balance +18% -9% -20% -28% -35% -42% +16% +3% +1% +57% SME Balance +23% -12% -25% -30% -35% -46% -45% +16% -8% -9%

8. Government Influence on Business Innovation Corporate governance policy -80-60-40-200%20406080 HelpsHindersNeutral Macroeconomic stability Employment legislation Environmental legislation Health & Safety legislation Business tax Planning policy Procurement practices Transport policy Education policy Intellectual Property policy +58% Balance +18% -9% -20% -28% -35% -42% +16% +3% +1% Areas for improvement More and better S & T technicians and graduates More and better S & T technicians and graduates Widen and increase level of the R&D tax credit Widen and increase level of the R&D tax credit Use procurement more strategically Use procurement more strategically Fund more applied R&D Fund more applied R&D +57% SME Balance +23% -12% -25% -30% -35% -46% -45% +16% -8% -9%

9. Why Procurement Matters £300m/yr £90m/yr £ billion/year CBI/QinetiQ Procurement & Innovation report 2006

10. Do Government Procurement Practices Help or Hinder Your Own Innovation Activity? HindersHelpsNeutral Supplier to central government Supplier to local government Not a supplier CBI/QinetiQ Procurement & Innovation report 2006 -31% -32% -7% Balance (help - hinder)

11. Do Government Procurement Practices Help or Hinder Your Own Innovation Activity? HindersHelpsNeutral Supplier to central government Supplier to local government Not a supplier 41% Firms with <500 staff 30% Larger firms Who is being hindered? CBI/QinetiQ Procurement & Innovation report 2006

12. Companies Reporting the Most Strongly Unfavourable Views on Government Procurement (%) Small companies consistently report more unfavourable views CBI/QinetiQ Procurement & Innovation report 2006

13. A New Approach to Stimulating Innovation: Recommendations Introduce innovation incentives and stretch targets in public procurement Introduce innovation incentives and stretch targets in public procurement Make outcome-based procurement a reality Make outcome-based procurement a reality Procurement on the basis of value Procurement on the basis of value Take a rational approach to IP rights Take a rational approach to IP rights Learn and adapt Learn and adapt Develop an ‘ARPA’ for the UK Develop an ‘ARPA’ for the UK

14. Conclusions Smaller companies are committed innovators Smaller companies are committed innovators Extra support for b2b collaboration Extra support for b2b collaboration Regulatory Impact Assessments must be improved to weed out adverse affects on SMEs Regulatory Impact Assessments must be improved to weed out adverse affects on SMEs Government must become an early adopter of new ideas to support the development of competitive supply chains Government must become an early adopter of new ideas to support the development of competitive supply chains